Method for Assessment of Sectoral Efficiency of Investments Based on Input-Output Models 1

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1 Global Joural of Pure ad Appled Mathematcs. ISSN Volume 12, Number 1 (2016), pp Research Ida Publcatos Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 1 Ato Koga Caddate of Ecoomc Scece, Assocate professor of the Char of Costructo Ecoomcs ad Ivestmets. Faculty of Ecoomcs, Maagemet ad Humatara Educato, Novosbrsk State Uversty of Archtecture ad Cvl Egeerg, 113, Legradskaya Street, Novosbrsk, , Russa. Abstract Stable ecoomc developmet requres the balace of may ecoomc factors that clude terests of producers ad cosumers; vested amouts, ther perods, effcecy ad prces; prces, expeses, rsks; prvate ad ecoomc terests. The author of ths work proposes to determe the exstece of such balace o the bass of the calculato of facal ad sectoral effcecy of vestmets. Sectoral effcecy s a type of ecoomc effcecy calculated for a average sectoral vestmet proect. To take to accout effects, put-output models are used. As a result, sectoral effcecy s assessed based o the dex of specfc value cremet speed (IS). Ths dex assesses also facal effcecy more exactly (as compared wth et preset value). Keywords. Iput-Output Models. Cost-Beeft Aalyss. Balace ecoomy. Itroducto Crses that regularly shake the world ecoomy make us look for ther causes ad methods of ther easg. Oe of the codtos of crss preveto s balace ecoomy. The coveto s that we dscuss ecoomy wthout mport ad export. It would seem to be a absolutely theoretcal structure, but such ecoomy exsts 1 The artcle was wrtte based o a grat provded by Novosbrsk State Uversty of Archtecture ad Cvl Egeerg (Sbstr).

2 20 Ato Koga realty t s the world ecoomy. Despte the fact that t s curretly a orm that govermets carry o teratoal trade (.e. they are coected wth export-mport), all provsos descrbed ths artcle ca be appled to ther ecoomy. Ecoomy develops as a system cosstg ( a most geeral descrpto) of compaes grouped a sector ad of fal cosumers (cludg households ad the state). But, alog wth the fal cosumpto, dustres have to maufacture products for vestmets doe by other compaes. It turs out ( a most geeral descrpto) that there are two flows of products the ecoomy oe for the fal cosumpto, the other for vestmets. Ecoomsts used to dvde ecoomy to two sectors, otg that some sectors make products for the fal cosumer, some other produce equpmet ad some other - producto meas for these dustres. Compaes maufacture thgs tedg to sell ther products at such a prce that wll esure some retur o the vested captal. Ths proftablty s dfferet each dustry ad depeds much o the rsk. If volatlty of compay s reveue would have bee smaller, the rsk would have bee smaller, cosequetly, the prces would have bee smaller too. O the other sde, returs o vestmets deped also o ecoomc characterstcs of the vestmets: o the combato of the equpmet cost, ts capacty ad servce lfe. Balace ecoomy meas balace of all ts compoets,.e. the balace of the two product flows, ecoomc characterstcs of vestmets ad prces for products. Ad ths balace has to exst ot wth a certa sector, but the whole ecoomy,.e. the system of sectors. I addto, there has to be a balace betwee prvate ad socal terests. I the opo of the author of ths artcle, t s possble to trace ad aalyze all above coectos oly wth the help of the put-output models (Eurostat. 2008, Uted Natos ) These models met wth wde ad deserved recogto. We are gog to descrbe such a model for some codtoal ecoomy to llustrate author s deas. Descrpto of a Iput-Output Model for Some Codtoal Ecoomy Let s accept that ths ecoomy cossts of =5 sectors (Table 1) ad s characterzed by the put coeffcets descrbed Tables 2, 3. Maufacturg dustres Table 1: Output ad cosumpto ecoomy, bl rub 2. User dustres Total FD (y ) Output (x ) Iterbrach cosumpto (x ) Ths model was used by the author the work (Koga. Cost Beeft Aalyss, 2015.)

3 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models Total IC Gross value added (vac k) Proft Deprecato Other GVA Total GVA (vac ) Total (x ) Note: FD fal demad. Maufacturg dustres Table 2: Iput-Output coeffcets 1 2 User dustres 3 Drect materal cost coeffcets (a ) Total (a ) Iput-Output coeffcets of GVA ( a ) vac k Proft Deprecato Other GVA vac Total ( a ) Grad total Table 3: Coeffcets of materal cost 5 User dustres Maufacturg dustres b

4 22 Ato Koga Idcators of Retur o Ivestmet Assessmet Ay dustry develops as a result of vestmet proects mplemetato. The proects requre vestmet of moey (costs) ad gettg some perodc proft the future. Compaes do busess oly f they are effcet. There are several types of effcecy. Facal effcecy s evaluated from the postos of a certa compay, socal effcecy s evaluated from the postos of the whole socety (govermet). Evaluato of these two types of effcecy s sometmes called the cost-beeft aalyss. There are offcal gudeles for the cost-beeft aalyss may coutres (Europea Commsso, 2008; World Road Assocato, 2012.) They suggest Net Preset Value (NPV) as the ma characterstc for the evaluato of facal effcecy; for the evaluato of socal effcecy - Ecoomc Net Preset Value (ENPV). The followg formulas are used to calculate these characterstcs: NPV NCF t t t 0 (1 k), (1) where s the accoutg perod of the vestmet proect, years; NCFt s the et cash flow at the ed of the t-th perod of tme; k s the dscout rate, %. ENPV S t t t t t 0 (1 r) t 0 (1 r) EcB EcC t, (2) where St s the balace of socal beefts ad socal costs; EcBt are socal beefts at the ed of the t-th perod; EcCt are socal costs at the ed of the t-th perod; r s the socal dscout rate; The author of ths artcle proves some of hs works (Koga, The Crtcsm, 201) that NPV s ot applcable for the comparso of the effcecy of proects wth dverse parameters. Proects wth wth dverse parameters mea proects that have three dfferet ma parameters: vestmets, calculated perod ad aual results. It s obvous that ay vestmet proect ca be mplemeted by dfferet methods allowg dfferet combato of these three parameters. It meas that ay vestmet proect has to be cosdered as a set of dverse-parameter alteratves. To evaluate ad compare effcecy of proects wth dverse parameters, the dex of specfc value cremet speed (IS) was developed. It s calculated accordg to the followg formula (Koga, The Crtcsm, 201): IS NPV EcC t t t 0 (1 r), (3a) The ecoomc dex of specfc value cremet (EIS) wll be calculated accordg to a smlar formula:

5 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 23 EIS ENPV EcC t t t 0 (1 r), (3b) Ths dex coects two ma ecoomc ams: more ad qucker. A proect s effcet, f IS s hgher or equal to 0. I the case of several alteratve proects, the oe that has hghest IS ws. Ths dex ca be used to solve the followg tasks: 1) evaluato of facal effcecy of vestmets (Koga, The Crtcsm, 201); 2) formg of a optmum portfolo of real vestmets (Koga, Bass of the Choce, 2015); 3) determg of optmum ecoomc characterstcs of ovatve products (Koga, A New Way, 201); ) evaluato of socal effcecy of vestmets (let s cosder t father). Sectoral Effcecy of Ivestmets I the opo of the author of ths work, balace ecoomy ca be assessed by calculatg the facal effcecy of vestmets dustres ad the sectoral effcecy of these vestmets. If a vestmet proect has both facal ad sectoral effcecy, t meas that there s the above balace of prvate ad ecoomc terests. Sectoral effcecy s a specal type of socal effcecy. Proposals of the author cocerg the calculato of sectoral effcecy are descrbed below. Before talkg about them, let us determe four types of vestmets: Ivestmet the proect, rub. Ivestmets portg dustres, rub. Drect Full v v pro pro v v Supportg dustres are dustres that provde ples for the output (maufacture of products) for the aalyzed cotrol strumetato. Drect vestmets cosst of products (ad servces) of dfferet sectors, as well as of GVA. As a result, to calculate socal cost, t s ecessary to determe the cost of all products maufactures ecoomy for vestmets the proect uder aalyss ad the dustres portg the proect. Ecoomcal cost(ecc) wll be calculated (at the ed of respectve t-th perods) accordg to the followg formula where EcC v pro v, () 1 v are vestmets portg dustres; pro v are vestmets the aalyzed proect calculated accordg to the followg formula

6 2 Ato Koga v pro 1 y v( pro) b vac v( drect) pro, (5) It s proposed to calculate vestmets the portg dustres accordg to the followg formula v() v( drect) v y b vac, (6) 1 v() where y s the output of the -th dustry that s purchased from resdets of the rego ecoomy to create producto facltes of the portg dustry (at the stage of vestmets); v( drect) vac s GVA that s formed drectly durg vestmets the portg dustry (for example, paymets for the servce of customer-cotractor, taxes, paymet for the lad lot, etc.) It s calculated accordg to the data from the busess pla. Characterstcs of Ivestmets The amout of drect vestmets the -th dustry 3 (v) ca be determed based o specfc vestmet coeffcets (g) v g, (7) v x v where x s the aual output of products of the -th dustry maufactured as a result of vestmets ths dustry, rub. Ivestmets ca be also characterzed usg coeffcets of drect vestmet costs a that are determed accordg to the formula v v y v a, (8) v v where y s the output of the -th dustry cosumed for vestmets the developmet of the -th dustry (where cotrol ad strumetato are realzed or whch s a portg oe), rub.; v s the vestmets the developmet of the -th dustry (where cotrol ad strumetato are realzed or whch s a portg oe), rub. Let us determe coeffcets of drect costs of GVA vestmets (the share of the -th elemet of the added value vestmets the developmet of the -th dustry) accordg to the formula v vac vac v k a ( ) k. (9) v 3 It ca be both a portg dustry or some dustry where the aalyzed proect s mplemeted.

7 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 25 v where vac k s the value of the k elemet of GVA the total amout of the vestmets. For codtoal ecoomy, these coeffcets are gve Table. Costs Table : Coeffcets of costs coected wth vestmets 1 2 Output 3 5 Coeffcets of drect vestmet costs a v Total v a Coeffcets of drect costs of GVA vestmets a vac( v) k Proft Deprecato Other GVA ( ) Total a vac v Grad total Characterstc of a Sector Average Proect Let us llustrate the method of sectoral effcecy evaluato that s proposed by the author of ths work. To do t, we are gog to descrbe a bg sector average vestmet proect,.e. a proect that s typcal for the aalyzed dustry. Let us assume that the amout of vestmets requred for the aalyzed sector average cotrol ad strumetato that wll maufacture products dustry ( pro v v ) s equal to 15 bl rub. Usg coeffcets a ad b, we determe the compoets of drect ad vestmets (the results are gve Table 5). As a result, vestmets for the proect wll be v bl rub, (10) pro

8 26 Ato Koga Table 5: Compoets of drect ad vestmets for a sector average cotrol ad strumetato Characterstc Compoets of drect vestmets Output of dustres v( pro) pro v v( y v a y Total GVA v vack v pro vac( v) a k Proft 0.77 Deprecato 0.13 Other GVA 1.66 Total, GVA 2.55 Compoets of vestmets b pro) Ivestmets Supportg Idustres To maufacture products wth sector average cotrol strumetato (doe the -th dustry) the plaed volume ( x ), the -th portg dustry has to prod( pro) prod() ply a certa volume of products ( x ), that ca be determed accordg to the data from the put-output model as follows: prod() prod( pro) x x a,. (11) The amout of drect vestmets the portg dustry ( v ) ca be determed accordg to the data from the put-output model based o the values of specfc vestmets coeffcets: v x g. (12) prod() Let us assume that the aual output of sector average cotrol strumetato prod( pro) x s 32 bl rub. Let us set the vestmet servce lfe ad specfc vestmets prod() coeffcets g, determe the volumes of ples of the portg dustres x based o the a set above, ad calculate v accordg to formula (12) (the results are gve Table 6).

9 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 27 Table 6: Characterstcs of output ad drect vestmets of portg dustres Supportg dustry Servce lfe g Output for cotrol strumetato x prod() Total Drect vestmets to esure output for cotrol strumetato v Note. Servce lfe s a perod durg whch meas of producto the -th dustry ca be used. I other words, t s the calculato perod of vestmet proects the respectve dustry. v Based o a, let us determe the structure of drect vestmets the portg dustres (the results are gve Table 7). Table 7: Structure of drect vestmets the portg dustres, bl rub. Output Costs Cosumpto of products of the -th dustry for vestmets the -th dustry ( y ) v() Total GVA vestmets the -th dustry vac v() k Proft Deprecato Other GVA Total GVA v() vac Grad total v

10 28 Ato Koga Now, kowg v ad b, t s possble to determe vestmets the portg dustres ( v ) accordg to formula (6) (the results are gve Table 8). Table 8: Full vestmets the portg dustres, bl rub. Characterstc 1 Full output of dustres v y () b Total () GVA vac v Grad total v Calculato of Socal Costs ad Beefts As a result, socal costs coected wth the aalyzed cotrol strumetato determed accordg to formula () wll be EcC0= =8.17 bl rub. (13) Idex 0 shows that these vestmets are doe at the begg at the 0 ( curret ) momet of tme. But the servce lfe of vestmets dustry (gve Table 6) s 10 years, ad dustres 1 ad 2 t s two tmes shorter 5 years. It meas that the socety wll have to repeatedly vest dustres 1 ad 2 to esure ples for cotrol strumetato durg years 5 through 10 of ts operato. Havg accepted that the perod of vestmets mplemetato s oe year, we have to pla repeated vestmets at the ed of year. As a result, the total vestmets of ecoomy that are requred for the realzato of cotrol strumetato at ths momet of tme wll be EcC= =5.05 bl rub. (1) Havg uderstood the socal costs, we have to evaluate socal beefts. The author of ths work cosders that socal beefts ca be evaluated both o the bass of fal cosumpto growth ad o the bass of the gross value added growth. Let us use the frst factor. We wll troduce a descrpto of the fal demad structure addto to the put-output model descrbed above (see Table 9). The growth of fal demad as a result of realzato of sector average cotrol strumetato s determed based o the output for cotrol strumetato ad the share of the fal cosumpto

11 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 29 of products of dustry the output of ths dustry: /1000 = 8.07 bl rub. Maufacturg dustry Table 9: Fal demad structure Fal cosumpto Net export Total, fal demad Output Total Note: the egatve value colum Net export meas that the demad the products of respectve dustry s satsfed partally due to mport. The postve value ths colum meas that the products of the respectve dustry s exported. - meas absece of value. Calculato of Prvate ad Socal Flows of Effects for Sector Average Cotrol Istrumetato Based o the calculated vestmets, let us assess facal ad socal effcecy of cotrol strumetato. We wll do the assessmet wth the help of effect flow dscoutg. Let us develop prvate ad socal flows of effects of the aalyzed cotrol strumetato (the results are gve Table 10.) The prvate flow wll cosst of drect vestmets the proect (15 bl rubles) ad aual values of proft ad deprecato (5.26 bl rub.) The aual amouts of proft ad deprecato are determed as multplcato of output for cotrol strumetato (32 bl rub.) ad coeffcets of drect costs of GVA ( a ) for deprecato ad proft ( ). vac k Let us accept that vestmets are assmlated wth a year. As a result, at the ed of the 1 st year the vestor wll ot get ether proft or deprecato they wll beg from the 2 d year. The dscout rate was set to be 15%. The flow of socal effects wll cosst of socal costs (8.17 bl rub. at the 0 momet of tme ad 5.05 bl rub at the ed of the th year) ad socal beefts that the socety wll get aually as a result of the operato of the cotrol strumetato (8.07 bl rub.) The socal dscout rate s set to be 10%.

12 30 Ato Koga Table 10: Flows of prvate ad socal effects emergg as a result of realzato of cotrol strumetato Characterstc Proect terval Prvate flow of effects (et cash flow) Proft (proceeds) Costs (paymets) 15.0 Balace Socal flow of effects Socal beefts Socal beefts (total vestmets ecoomy), cludg: vestmets proect vestmets portg dustry vestmets portg dustry vestmets portg dustry vestmets portg dustry vestmets portg dustry Socal balace Note. Aual effects durg years 6 through 10 (the cash flow value) do ot chage, that s why they are gve oe colum. Assessmet of Effcecy of Sector Average Cotrol Istrumetato Dscouted values of prvate ad socal flows of effects are gve Table 11. The aalyzed cotrol strumetato has the followg facal actvty characterstcs (calculated accordg to formulas 1, 2, 3a, ad 3b): NPV = 6.8 bl rub., IS = 0.06 rub./rub. per year. Characterstcs of sectoral effcecy of the gve cotrol strumetato are: ENPV = bl rub., EIS = rub./rub. per year. It follows that vestmets the dustry uder aalyss have facal effcecy, but do t have sectoral effcecy.

13 Method for Assessmet of Sectoral Effcecy of Ivestmets Based o Iput-Output Models 31 Table 11: Dscouted values of prvate ad socal flows of effects Characterstc Momet (proect terval) Balace of prvate flow of effects (et cash flow) Dscout coeffcets Dscouted balace of prvate flow of effects NPV 6.8 Balace of socal flow of effects Dscout coeffcets Dscouted balace of prvate flow of effects ENPV Note. Dscout coeffcets for the prvate flow of effects were calculated wth the 15% dscout rate. Dscout coeffcets for the socal flow of effects were calculated wth the 10% dscout rate. Summary Let us crtcze the calculatos descrbed above. Assessmet of sectoral effcecy depeds to a great extet o the dscout rate. The same refers to facal effcecy, but dscout rate calculato for t was thoroughly developed. I the descrbed example, the sectoral average cotrol strumetato has sectoral effcecy wth the socal dscout rate of 5.85% ad less. Aalyss of sectoral effcecy makes t possble to compare average prces for products the dustry wth average vestmets (for the dustry), ther capacty ad servce lfe. It makes t possble to draw certa coclusos about the codto ad prospects of the dustry as well as about chages requred to acheve the target codto. Correlato of prces, vestmets, ther perods ad servce lves has to esure proftablty characterstc of the respectve dustry. Some problems coected wth practcal assessmet of sectoral effcecy have to be poted out. statstcs cludes data of both proftable ad loss-makg compaes ad shows retrospectve, ot perspectve. It meas that statstc data does ot reflect the fact that moder vestmet proect are sgfcatly dfferet from those that were mplemeted the aalyzed dustry. The dffereces are coected ot oly wth the techology used the proect, but also wth the correlato of prces, vestmets, ther capacty ad servce lves. There s also a practcal problem wth the calculato of vestmet proect characterstc that are average for the dustry. Whe calculatg sectoral effcecy, we used values of fal cosumpto growth for products the aalyzed dustry that appears as a result of realzato of stadard cotrol strumetato ths dustry. But some proects ca be amed ot at fal

14 32 Ato Koga cosumpto, but at the termedate oe. If they are assessed accordg to the cotrbuto to GDP, they wll varably be effcet, that s why the proposed method s ot applcable for all dustres. At the ed, we would lke to say that ths crtc does ot take from the value of the method for sectoral effcecy assessmet suggested by the author; t ust creates a bass for ts further developmet. Refereces [1] Europea Commsso, 2008, Gude to Cost Beeft Aalyss of Ivestmet Proects, DG Regoal Polcy. [2] Eurostat, 2008, Eurostat Maual of Supply, Use ad Iput-Output Tables, Methodologcal ad Workg Paper. [3] Koga, A., 201, A New Way to Icrease the Compay Value, Mddle East Joural of Scetfc Research. V p , DOI: /dos.mesr [] Koga, A., Bass of the Choce of Optmal Characterstcs for Iovatve Equpmet, Iteratoal Joural of Appled Egeerg Research. - Volume 10, Number 3, pp [5] Koga, A. Cost Beeft Aalyss of Ivestmet Proects, based o Iter- Models, Joural of Advaced Research Law ad Ecoomcs, (Volume VI, Summer), 1(11). [6] Koga, A. The Crtcsm of Net Preset Value ad Equvalet Aual Cost, Joural of Advaced Research Law ad Ecoomcs, (Volume V, Summer), 1(9): 15 22, DOI: /arle.v5.1(9).02. [7] Uted Natos, 1999, Hadbook of Iput-Output Table Complato ad Aalyss. "Studes Methods", Seres F, No. 7, New York. [8] World Road Assocato (PIARC), 2012, State of the Practce for Costeffectveess Aalyss (CEA), Cost- Beeft aalyss (CBA) ad resource allocato.