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CONCEPTS


THE PRODUCTION BOUNDARY

2.1 The 2008 SNA includes both observable and non–observable production in the scope of the national accounts. Paragraph 6.27 states:

The production boundary of the SNA includes the following activities:
1. The production of all goods or services that are supplied to units other than their producers, or intended to be so supplied, including the production of goods or services used up in the process of producing such goods or services;
2. The own–account production of all goods that are retained by their producers for their own final consumption or gross capital formation;
3. The own–account production of knowledge–capturing products that are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use;
4. The own–account production of housing services by owner occupiers; and
5. The production of domestic and personal services by employing paid domestic staff.
The SNA boundary excludes most services produced for own use by households.

6.39 There is considerable interest in the phenomenon of the non–observed economy. This term is used to describe activities that, for one reason or another, are not captured in regular statistical enquiries. The reason may be that the activity is informal and thus escapes the attention of surveys geared to formal activities; it may be that the producer is anxious to conceal a legal activity, or it may be that the activity is illegal...

6.40 Certain activities may clearly fall within the production boundary of the SNA and also be quite legal (provided certain standards or regulations are complied with) but deliberately concealed from public authorities for the following kinds of reasons:
1. To avoid the payment of income, value added or other taxes;
2. To avoid the payment of social security contributions;
3. To avoid having to meet certain legal standards such as minimum wages, maximum hours, safety or health standards, etc;
4. To avoid complying with certain administrative procedures, such as completing statistical questionnaires or other administrative forms.

6.41 Because certain kinds of producers try to conceal their activities from public authorities, it does not follow that they are not included in national accounts in practice. Many countries have had considerable success in compiling estimates of production that cover the non–observed economy as well as the ordinary economy. In some industries, such as agriculture or construction, it may be possible by using various kinds of surveys and the commodity flow method to make satisfactory estimates of the total output of the industry without being able to identify or measure that part of it that is not observed. Because the non–observed economy may account for a significant part of the total economy of some countries, it is particularly important to try to make estimates of total production that include it, even if it cannot always be separately identified as such.

6.42 There may be no clear borderline between the non–observed economy and illegal production. For example, production that does not comply with certain safety, health or other standards could be described as illegal. Similarly, the evasion of taxes is itself usually a criminal offence. However, it is not necessary for the purposes of the SNA to try to fix the precise borderline between non–observed and illegal production as both are included within the production boundary in any case. It follows that transactions on unofficial markets that exist in parallel with official markets (for example, for foreign exchange or goods subject to official price controls) must also be included in the accounts, whether or not such markets are actually legal or illegal.

6.43 There are two kinds of illegal production:
1. The production of goods or services whose sale, distribution or possession is forbidden by law;
2. Production activities that are usually legal but become illegal when carried out by unauthorized producers; for example, unlicensed medical practitioners.

6.44 Examples of activities that may be illegal but productive in an economic sense include the manufacture and distribution of narcotics, illegal transportation in the form of smuggling of goods and of people, and services such as prostitution.

6.45 Both kinds of illegal production are included within the production boundary of the SNA provided they are genuine production processes whose outputs consist of goods or services for which there is an effective market demand. The units that purchase smuggled goods, for example, may not be involved in any kind of illegal activities and may not even be aware that the other party to the transaction is behaving illegally. Transactions in which illegal goods or services are bought and sold need to be recorded not simply to obtain comprehensive measures of production and consumption but also to prevent errors appearing elsewhere.