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Social Accounting Matrix Approach in IFs

A SAM integrates a multi-sector input-output representation of an economy with the broader system of national accounts, also critically representing flows of funds among societal agents/institutions and the balance of payments with the outside world. Richard Stone is the acknowledged father of social accounting matrices, which emerged from his participation in setting up the first systems of national accounts or SNA (see Pesaran and Harcourt 1999 on Stone’s work and Stone 1986). Many others have pushed the concepts and use of SAMs forward, including Pyatt (Pyatt and Round 1985) and Thorbecke (2001). So, too, have many who have extended the use of SAMs into new frontiers. One such frontier is the additional representation of environmental inputs and outputs and the creation of what are coming to be known as social and environmental accounting matrices or SEAMs (see Pan 2000). Another very productive extension is into the connection between SAMs and technological systems of a society (see Khan 1998; Duchin 1999). It is fitting that the 1993 revision of the System of National Accounts by the United Nations began explicitly to move the SNA into the world of SAMs.

The SAM of IFs is integrated with a dynamic general equilibrium-seeking model. The structural representation is a variant and to some degree an extension of the computable general equilibrium formulations that often surround SAMs. In wrapping SAMs into CGEs, Stone was a pioneer, leading the Cambridge Growth Project with Alan Brown. That project placed SAMs into a broader modeling framework so that the effects of changes in assumptions and coefficients could be analyzed, the predecessor to the development and use of computable general equilibrium (CGE) models by the World Bank and others. Some of the Stone work continued with the evolution of the Cambridge Growth Model of the British economy (Barker and Peterson, 1987). Kehoe (1996) reviewed the emergence of applied general equilibrium (GE) models and their transformation from tools used to solve for equilibrium under changing assumptions at a single point in time to tools used for more dynamic analysis of societies.

The approach of IFs is both within these developing traditions and an extension of them on five fronts. The first extension is in universality of the SAM representation. Most SAMS are for a single country or a small number of countries or regions within them (e.g.. see Bussolo, Chemingui, and O’Connor 2002 for a multi-regional Indian SAM within a CGE). The IFs project has created a procedure for constructing relatively highly aggregated SAMs from available data for all of the countries it represents, relying upon estimated relationships to fill sometimes extensive holes in the available data. Jansen and Vos (1997: 400-416) refer to such aggregated systems as using a "Macroeconomic social Accounting Framework." Each SAM has an identical structure and they can therefore be easily compared or even aggregated (for regions of the world).

The second extension is the connecting of the universal set of SAMs through representation of the global financial system. Most SAMs treat the rest of the world as a residual category, unconnected to anything else. Because IFs contains SAMs for all countries, it is important that the rest-of –the-world categories are mutually consistent. Thus exports and imports, foreign direct investment inflows and outflows, government borrowing and lending, and many other inter-country flows must be balanced and consistent.

The third extension is a representation of stocks as well as flows. Both domestically and internationally, many flows are related to stocks. For instance, foreign direct investment inflows augment or reduce stocks of existing investment. Representing these stocks is very important from the point of view of understanding long-term dynamics of the system because those stocks, like stocks of government debt, portfolio investment, IMF credits, World Bank loans, reserve holdings, and domestic capital stock invested in various sectors, generate flows that affect the future. Specifically, the stocks of assets and liabilities will help drive the behavior of agent classes in shaping the flow matrix.

The IFs stock framework has been developed with the asset-liability concept of standard accounting method. The stock framework is also an extension of the social accounting flow matrix, and the cumulative flows over time among the agents will determine the stocks of assets or liabilities for all agents. If the inflow demands repayment or return at some point in future, it is considered as liability for that agent and an asset for the agent from which the flow came. For example, in IFs, if a government receives loans (inflow) from other countries, the stock of those loans is a liability for the recipient government and an asset for the country or countries providing the loans.

The fourth extension is temporal and builds on the third. The SAM structure described here has been embedded within a long-term global model. The economic module of IFs has many of the characteristics of a typical CGE, but the representation of stocks and related agent-class driven behavior in a consciously long-term structure introduces a quite different approach to dynamics. Instead of elasticities or multipliers on various terms in the SAM, IFs seeks to build agent-class behavior that often is algorithmic rather than automatic. To clarify this distinction with an example, instead of representing a fixed set of coefficients that determine how an infusion of additional resources to a government would be spent, IFs increasingly attempts partially to endogenize such coefficients, linking them to such longer-term dynamics as those around levels of government debt. Similarly, the World Bank as an actor or agent could base decisions about lending on a wide range of factors including subscriptions by donor states to the Bank, development level of recipients, governance capacity of recipients, existing outstanding loans, debt-to-export ratios, etc. Much of this kind of representation is in very basic form at this level of development, but the foundation is in place.

The fifth and final extension has already been discussed. In addition to the SAM, The IFs forecasting system also includes a number of other models relevant to the analysis of longer-term forecasts. For example demographic, education, health, agriculture, and energy models all provide inputs to the economic model and SAM, as well as responding to behavior within it. The effort is to provide a dynamic base for forecasts can be made well into the 21st century. It is important to quickly emphasize that such forecasts are not predictions. Instead they are scenarios to be used for thinking about possible alternative longer-term futures. [1]

[1] As a graduate student in what is now the Josef Korbel School of International Studies, Anwar Hossain worked with Barry Hughes in the development of the SAM structure and database for IFs (see Hughes and Hossain 2003); his help was much appreciated.