Linking Reported Income to the GTAP Primary Factors

Household income was linked to the GTAP factors following the methodology in Ivanic (2004):

Assumption 1, Wage labor: Wages are received by employed household members, not by employers, or the self-employed. These include cash and in kind (with reported cost estimates provided in the respective questionnaire).

Assumption 2, Skilled labor: Reported and imputed wages were classified based on a person's skill level as either skilled or unskilled. For Cambodia, GTAP's definition was followed: all professional workers and managers were classified as skilled; unskilled otherwise. For Lao PDR, education was used as proxy (as described above).

Assumption 3, Transfers: Transfers include both government and private transfers.

Assumption 4, Property rents: Property rents are either agriculture or non-agriculture property rents. Agricultural property rents include rental payments for land, farming equipment, and other agricultural instruments. Non-agricultural property rents include rental payments for buildings, houses, non-agricultural equipment, and non-agricultural dividends. In the Cambodia dataset, agricultural property rents include rental payments for land and ponds, while non-agricultural property rents include dividends and rental payments for house and building space. In the Lao dataset, agricultural property rents include rental payments for land, while non-agricultural property rents include dividends and rental payments for house and building space.

Assumption 5, Agriculture vs. non-agriculture: Based on the definition in the Cambodia and Lao PDR questionnaires, farming, livestock, fishing, and forestry are considered agricultural, while mining, services, and manufacturing are non-agricultural.

Assumption 6, Imputation of capital: The value of capital is the residual of the reported business income less the estimated return to labor. This applies to both agriculture and non-agriculture sector.

Assumption 7, Estimated returns to labor: The imputed labor income for all household members involved in the business. The imputed labor income for a household member was determined as the average wage of all workers in the survey dataset that: (i) earned wage income only; and (ii) possessed an identical set of personal characteristics, i.e., age, education level, skill level, and industry of employment.

Assumption 8, Returns to Land: The value of returns to land is the GTAP-determined fixed ratio of capital returns in agriculture. Returns to land and capital were split from the sum of agricultural property rents and the residual of reported business income and imputed wage, using the factor payment shares from the GTAP database derived from econometric studies of cost shares in agriculture (Hertel, Ivanic, and Cranfield. 2004). For Asia, alpha is .88 (Table 1 [ PDF 55KB | 1 page ]).

Assumption 9: Following the definition of business income in Ivanic (2004), agricultural business income includes imputed agricultural wage, returns to capital, and returns to land, while non-agricultural business income contains imputed non-agricultural wage, non-agricultural capital, and non-agricultural property income. Total household income includes all sources of household income; that is, the sum of all factor income: Agskl, AgUskl, Nagskl, NagUskl, Wgeskl, WgeUskl, Agcap, Land, Nagcap, and Transfers.

Table 2 [ PDF 55KB | 1 page ] is a revised version of the example in Ivanic (2004) of how business income is broken down, following the formulas in Table 1 [ PDF 55KB | 1 page ]. For example, if a household reported a total of US$100 of agricultural business income, of which US$60 is imputed labor income from agricultural activities, profit is equal to US$100 less imputed wage; that is, US$40. The combined return to land and capital is equal to the profit plus reported property income. To obtain the returns to land, multiply this figure (US$70) with the GTAP determined alpha, 88%. In the non-agricultural business, the return to capital would be zero, as the imputed wage is equal to reported business income.

Download this Paper [ PDF 293.9KB| 26 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.