Contact address Statistical Center of Iran (SCI), NO1, Corner of Rahi Mayeri St., Dr. Fatemi Ave, Tehran, ,Iran

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1 Asia-Pacific Economic Statistics Week Seminar Component Bangkok, 2 4 May 2016 Name of author : Hojjat Akbarian, Nader Hakimipour, Mohamad Sadegh Alipour Organization Statistical Center Of Iran Contact address Statistical Center of Iran (SCI), NO1, Corner of Rahi Mayeri St., Dr. Fatemi Ave, Tehran, ,Iran Contact phone Tel: (+98) Title of Paper Comparison between the results obtained from old and new activity classification in identify of key sectors of Iran economic Abstract: according to the technology upward development, regional and international changes, the economic activity classification has been reviewed in consideration to old version. This review, can improve the quality of statistics and therefore the results of the outcomes of researches in different economic fields. In this paper, the affection of this review pointed on the Iran s key economic activities which ranked according to the both new and old version of activity classification. To reach this goal, the last input-output table that published by statistical central office of Iran had been used. In this paper, new method of eigenvector based on Perron- Frobenius theory has been used for positive Irreducible matrix. In this method left and right eigenvector assigned to the maximum eigenvalue. These vectors are the criteria for comparison of backward and forward linkage between sectors of economy. New classification in comparison with the old one have more details. As a result some sectors are not considered as a key sectors although they were in old classification and vice versa. Finally, new activity classification has changed the ranks of different sectors of economic and it has more accuracy than before. Those, the results show that the review of economic activity classification has improved the quality of statistics and the outcomes of this research. Keywords: international classification of economic activity, backward linkage, forward linkage, input-output table, Eigenvector, key sectors

2 Contents Introduction Historical background of International Standard Classification of Economic Activities The fourth revision of ISIC Historical background in Iran General principle of Iran s classification according to ISIC, Rev 4 and the difference with international ISIC The effects of revisions to the plan and results of research Economic key sectors of Iran based on input-output table that classified by revision 2 and revision 3.1 of the International Standard Industrial Classification of All Economic Activities (ISIC) Proper values Economic key sectors based on input-output table that classified by ISIC, Rev, Economic key sectors based on input-output table that classified by ISIC, Rev, Conclusion References

3 Introduction The Input-output table has a significant place for planning and economic analysis as an instrument of economic. The importance of input-output table and its applications is very high which is now less country can be found that has not at least once attempted to provide it. The input-output table shows the structure of production and consumption economy, in additional it is a tool that provides the most detailed possible interrelationships between economic sectors. Therefore it could answers many questions about economy structure. For example, this table shows that what products are producing in the country, what field activities are producing, how is the structure of production and consumption and etc. The Input-output table in the field of economic analysis of the relationship between the components of final demand and output fields of the various activities, the structure of demand, cost analysis, structural analysis, energy analyzes, environmental analysis, sector analysis tourism, analysis related to key sectors of the economy, and so it is a powerful tool. There are many considerations in preparing the table Input-Output such as table size and type of classification considered. As the system of national accounts, the classification for input-output table in the Fields (Sections), ISIC and the classification for goods, CPC suggested. Therefore, in the preparation of the 2001input-output table for Fields classification based on the third edition of ISIC, (ISIC, REV.3) and the classification for products based on the first version of the CPC approved by the twenty-ninth session United Nations statistical Commission in 1997 (CPC.V.1.0). Moreover, in the preparation of input-output table of 2011classification of ISIC, (Rev 4) used. The growth of technology, advances in technology and international and regional developments, international classification of economic activities in certain time periods while maintaining the connection with the previous version, the revised and the new version would be presented. After the review, according to coordinate ISIC with national situations may its ranks in order to enhance the structure of the national economy, compact or details to be added. If a particular economic sector is of utmost importance, or unique features added to it that in ISIC is not specified, in this case, the classification of items in the further development. This revision and nationalized could effects on quantity of statists and the results of research and studies according to the economic and social planning will be transform. The input-output table is showing deal between different economic sections directly effects of classification of economic activities and any changes in this classification can effects on input-output table s data. In this article for analysis and consider effects of revision and presented of new ones in Iran s economic sectors use of input-output table according to ISIC, Rev.2 and Rev.3.1. Due to this, sectors ranking is obtained based on backward and forward linkage that is calculated by eigenvector method. This article includes 5 parts. The first part is about historical background of International Standard Classification of Economic Activities. The second one is summarized of general principle of Iran s classification according to ISIC, Rev 4 and the difference with international ISIC. In third parts is effects of revisions to the plan and results of research will be presented. The fourth part is about economic key sectors of Iran based on input-output table that classified by revision 2 and revision 3.1 of the International Standard Industrial Classification of all economic activities (ISIC). Finally in last part the conclusion of the article will be presented. 3

4 1. Historical background of International Standard Classification of Economic Activities The original version of the International Standard Industrial Classification of All Economic Activities (ISIC) was adopted in In that connection, the Economic and Social Council adopted resolution. The Statistical Commission initiated reviews and revisions of ISIC in 1956, 1965, 1979 and again in While continuity, i.e., comparability between the revised and preceding versions of ISIC, has always been a major concern expressed by the Commission, the accumulating changes in the economic structure and production patterns around the world require a careful balancing of continuity with the need for relevance of ISIC and its comparability with other existing industry classifications. The first revision of ISIC (ISIC, Rev.1) was issued in 1958, after having been considered by the Statistical Commission at its tenth session.5 the second revision (ISIC, Rev.2) was issued in 1968 after proposals for the revision had been considered and approved by the Commission at its fifteenth session, in The third revision of ISIC (ISIC, Rev.3) was considered and approved by the Commission at its twenty-fifth session, in 1989, and issued in The update to the third revision (ISIC, Rev.3.1) was considered and approved by the Commission at its thirty-third session, in 2002, and issued in The third and fourth revisions of ISIC put increased emphasis on harmonization with other activity classifications and product classifications, adding considerable complexity and constraints that did not apply in earlier revisions of ISIC. As ISIC occupies a central position in the international comparison and analysis of a wide range of statistics, a great deal of attention was devoted to ensuring that ISIC would be compatible with both the economic structure and the statistical practice and needs of the different countries of the world. Both revisions have also introduced an increasing level of detail, especially in the part dealing with service activities, reflecting the growth of this sector of the economy in most countries of the world. In addition, harmonization with other classifications has improved the usefulness of ISIC for many analytical and descriptive purposes, such as within the context of the extended elaboration of services in the Central Product Classification (CPC) The fourth revision of ISIC In the years since the publication of the third revision of ISIC, the economic structure in many countries of the world has changed at an unprecedented rate. The emergence of new technologies and new divisions of labor between organizations has created new types of activities and new forms of industries, posing a challenge for both providers and users of statistical data. In response to their growing demands, the Expert Group on International Economic and Social Classifications, at its fourth meeting in 1999, considered the need for a revision of ISIC to better reflect changed structures and analytical requirements. Realizing that a full revision would require a longer time to complete, the expert group recommended an update to the third revision of ISIC, which became Revision 3.1 scheduled for 2002, to address some smaller immediate concerns regarding the classification and at the same time start preparation for the fourth revision of ISIC, which would be completed in While some of the rules for the application of ISIC, Rev.4 have been changed and the criteria for the construction of the classification and the formulation of explanatory notes have been reviewed, the overall characteristics of ISIC remain unchanged. The detail of the classification has substantially increased. For service-producing activities, this increase is visible at all levels, including the top level, while for other activities, such as agriculture, the increase in detail has affected mostly the lower levels of the classification. 4

5 In this fourth revision of ISIC, great efforts have been made to address the need for convergence between existing activity classifications at the international and multinational levels. Experience with the implementation of classifications and development work on classifications carried out in countries around the world have greatly contributed to ISIC, Rev.4. Explanatory notes have been extended to provide additional detail, allowing for more accurate interpretation of the content and boundaries of individual classes, which should lead to a less ambiguous application of ISIC, Rev Historical background in Iran - The First published based on first version of ISIC by Public Statistical Bureau in The Classification was reviewed in 1986, 1987 and Statistical Center of Iran translated all ISIC versions from 1976 year and preparation and coding the lists of Iran s Economic Activities. - The final version of Iran Classification of Economic Activities according to ISIC rev4 in General principle of Iran s classification according to ISIC, Rev 4 and the difference with international ISIC Since the revised classification of economic activities according to ISIC, Rev.4 is done in Iran, How encoded activity is also fully consistent with the encoding used in ISIC. Unlike the previous versions, in the present national classification in same cases the 4 digit codes have been extended for presenting more detailed data instead of using the blank codes provided in the original version. - Iran s classification is exactly same as international classification in fourth digit level, 5- digit code created to provide more details required at the national level. - International standard classification of economic activities (Version 4)includes of 21 sections 88 divisions, 238 groups and 419 classes while, present national classification includes of 21 sections, 89 divisions, 235 groups and 416 classes and 60 sub-group - Apart from the 5-digit code that gives detailed requirements presented at the national level, national classification is difference with international in three cases: 1- In this classification same as 1994, 2002 and 2006 versions due to necessary of allocate specific code to units that has common agriculture activities engages with industry, the 34 division allocate to this group in industry. Therefore, group and class of 340, 3400 is added in this classification as agro-industry activities. 2- The 61 division in international classification allocated to telecommunication activities that includes of 61 classes ( wired activities), 6120( wireless activities ), 6130 (satellite activities), 6190( other activities).due to structure of workshop in these activities in country and problems related to provide data according to concepts of international classification, 61, 6120 and 6130 codes emerges in national classification and added in 60 code»wired, wireless and satellite activities«. 3- THE 78 division is devoted to recruitment activities in international classification and includes 78 classes (job employment agency activities), 7820(temporary employment agency activities) and 7830(secure other resources). In this division also these codes is emerged and comes with 7800 code (due to structure of employment agency and employment in the country, 5

6 3. The effects of revisions to the plan and results of research Preparation and implementation of social and economic programs and detailed evaluation it will require the use of accurate, comprehensive and update statistics. For the data to be able to provide a clear picture of economic structures, not only necessary comparable statistics at national and international levels, but should be comprehensive and entirely consistent with the social and economic developments. Due to the rapid growth of technology, regional and international developments, the classification of international economic activities in certain time periods while maintaining the connection with the previous version, the revised and new versions are offered. This review can be effects on the quality and results of research in various fields to improve the economy. Providing classification in more detailed, moving the subsections between different levels of classification, the importance of new economic activities, adding new activities, could be make change in various fields of economic research. This reformation in classification which is according to revision of International Standard Classification of Economic Activities even could effects on importance of different economic sectors that is one of the important subject to planning in every country. Due to these reformation, value added of sectors, deal between sectors, the size of sectors in various levels of classification and also other variables will be changed. Since the publication of the third revised ISIC So far, the economies structure of many countries rapidly changed. The emergence of new technologies and a new division of work among organizations, a variety of new activities and new forms of industry, it could create challenges for providers and users of statistical data. In this article, we show that this revision in classification ISIC how will be effect on the results of key sectors. In determining key sectors will be used of the input-output table in Economic key sectors of Iran based on input-output table that classified by revision 2 and revision 3.1 of the International Standard Industrial Classification of All Economic Activities (ISIC) In this section, economic key sectors of Iran has identified based on input-output table that classified once by revision 2 and once again by revision 3.1(ISIC, 3.1). In determining of economic key sectors, backward and forward linkage that obtained from eigenvector method has been used. The reason for using of eigenvector method is that more researchers believe that in using of this method durability of sectors are considered. When durability of sector is low, more productions of sector are used for final consumption and those sectors are removed from production cycle and not lead to more value added in other sectors. This topic not considered in traditional methods such as Rusmussen. Before identifying economic key sectors, first backward and forward linkage in eigenvector method are explained in below. 4.1 Proper values Proper values, as it is well known, are sets of scalars referred to with many different names: characteristic roots, latent roots, eigenvalues Each one determines an associated vector, right and left, called eigenvector. The highest eigenvalue λ is dominant λ D and its associated vector is known as the Perron vector. The right eigenvector is defined as a column vector that satisfied the equation:bv d = λv d, where B is a square matrix-allocation coefficient one, for instance-v d the eigenvector and λ the eigenvalue associated to V d. The system could thus be expressed as 6

7 (B λi)v d = 0. Likewise, the left eigenvector is row vector that satisfies V i A = λv i, which when transposed gives A V i = λv i ; A is square matrix-technical coefficient one, for example-and, as in the previous example, could be transposed as (A λ)v i = 0. Deitzenbacher (1992) 1 has proposed using the elements of the right and left vectors associated with the dominant eigenvalue of matrix B and A, respectively, as appropriate indicators of intersectoral relations. In particular, the elements of eigenvector V d associated with the dominant eigenvalue λ D of matrix B could be used to forward linkage, whereas those of the left eigenvector V i of matrix A could be used to estimate backward relations. The results will be very small numbers that can be normalized by dividing them by the average of these addends. Key sectors would thus be defined in the usual manner as the forward and backward linkages that are above average, thus being greater than one. 4.2 Economic key sectors based on input-output table that classified by ISIC, Rev, 2 In table (1), ranking of economic sectors by using of input-output table approach are showed. As you can see, in this case number 15 sectors have normalized backward linkage bigger than unit and number 8 sectors have normalized forward linkage bigger than unit that these sectors are considered as key sectors. These sectors concluded Manufacture of wood and products of wood, Manufacture of paper and paper products, Manufacture of basic metals, Manufacture of basic metals and Electricity. (table2). In fact, these sectors have higher durability in supply chin relative to other sectors. This means that conduction of resources to these sectors can stimulate the economy and cause to economic growth. Table (1): backward and forward linkage and rank of sectors obtained from input-output table with classification of ISIC, Rev, 2 row sectors Backwar Forward rank d linkage linkage rank 1 Crop production Animal production, silk and honey production, hunting Forestry and logging Fishing Extraction of crude petroleum and natural gas Other mining and quarrying Manufacture of food products, beverages and tobacco Manufacture of textiles, wearing and leather Manufacture of wood and products of wood Manufacture of printing and publishing, paper and paper 3.41 products Manufacture of chemical and chemical products, rubber 0.56 and plastics products Manufacture of other non-metallic mineral products Manufacture of basic metals Manufacture of machinery and equipment, tools and Dietzenbacher (1992, p. 420) We propose another alternative method... In the next section it is shown that the elements of the Perron vector, that is the eigenvector corresponding to the dominant eigenvalue of a matrix, can be used for measuring linkages. The right-hand Perron vector of the output matrix provides the forward linkage indicator, the left-hand Perron vector of the input matrix gives the backward linkage indicator. 7

8 metal products 15 Manufacture of furniture 16 Electricity 17 Natural gas 18 Water 19 Residential buildings 20 Other buildings 21 Wholesale and retail trade and repair of motor vehicles and motorcycles 22 Hotel and dormitory 23 Restaurant 24 Transport via railways 25 Passenger rail transport, interurban 26 Transport via pipelines 27 Water transport 28 Air transport 29 Support and warehousing services 30 Postal and courier activities 31 Bank 32 Other monetary intermediation 33 Insurance 34 Real estate activity 35 Real estate activities (residential units) 36 Real estate activities (nonresidential units) 37 Real estate brokers activities 38 Public administration 39 Public administration 40 Urban services 41 Defense activity 42 Law enforcement activities 43 Compulsory social security 44 public primary education 45 Private primary education 46 public General, technical and vocational secondary education 47 Private General, technical and vocational secondary education 48 public higher education 49 Private higher education 50 Adult education, public 51 Adult education, private 52 public health services 53 Private health services 54 veterinary services 55 Social work activities 56 Amusement, cultural and sport 57 Religious and political services 58 Other services Reference: finding of research

9 Table (2): economic key sectors of Iran based on input-output table-isic Rev, 2 Backward Forward Row Sectors linkage linkage 9 Manufacture of wood and products of wood Manufacture of printing and publishing, paper and paper products Manufacture of basic metals Manufacture of machinery and equipment, 14 tools and metal products Electricity Reference: finding of research 4.3. Economic key sectors based on input-output table that classified by ISIC, Rev, 3.1 In previous section the economic key sectors of Iran determined by data of 2011 based on input-output table with classification of ISIC, Rev, 2. In this section, same processes have performed with ISIC, Rev, 3.1. The results of table 3 clearly show that in this case number 6 sectors have normalized backward linkage bigger than unit and number 14 sectors have normalized forward linkage bigger than unit that these sectors are considered as key sectors. These sectors concluded Manufacture of paper and paper products, Manufacture of machinery and equipment n.e.c., Manufacture of machinery office, accounting and calculating machinery and Manufacture of motor vehicles, trailers and semi-trailers. (Table4). Table (3): backward and forward linkage and rank of sectors obtained from inputoutput table with classification of ISIC, Rev, 3.1 row Sectors Backward Forward rank linkage linkage rank 1 Crop production Animal production, silk and honey production, hunting Forestry and logging Fishing Extraction of crude petroleum and natural gas Other mining and quarrying Manufacture of food products and beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel, dressing and dyeing of fur Tanning and dressing of leather and manufacture of leather products Manufacture of wood and products of wood Manufacture of paper and paper products

10 Printing and reproduction of recorded media Manufacture of coke and refined petroleum products and nuclear fuels Manufacture of chemical and chemical products Manufacture of rubber and plastics products Manufacture of other non-metallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of machinery and equipment n.e.c. Manufacture of machinery office, accounting and calculating machinery Manufacture of electrical equipment n.e.c Manufacture of radio television sets and communication devices Manufacture of medical and optical instruments, precision instruments and watches Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Manufacture of furniture and manufactured products n.e.c Electricity Natural gas Water Residential buildings Other buildings Wholesale and retail trade and repair of motor vehicles and motorcycles Hotel and dormitories Restaurants Transport via railways Road transport Transport via pipelines Water transport Air transport Support and warehousing services Postal and courier activities Bank Other monetary intermediation Insurance Real estate activities (residential units) Real estate activities (nonresidential units) Real estate brokers activities Business activities

11 51 Public administration 52 Urban services 53 Defence activity 54 Law enforcement 55 public primary education 56 Private primary education 57 public General, technical and vocational secondary education 58 Private General, technical and vocational secondary education 59 public higher education 60 Private higher education 61 Adult education, public 62 Adult education, private 63 public health services 64 Private health services 65 veterinary services 66 Social work activities 67 Amusement, cultural and sport 68 Religious and political services 69 Other services Reference: finding of research E E Table (4): economic key sectors of Iran based on input-output table-isic Rev, 3.1 row sectors Backward Forward linkage linkage 13 Manufacture of paper and paper products Manufacture of machinery and equipment n.e.c Manufacture of machinery office, accounting and calculating machinery Manufacture of motor vehicles, trailers and semi-trailers Reference: finding of research 11

12 5. Conclusion In this article we considered the necessary of revision of ISIC during different times. The inputoutput table is selected for this which is one of the important tool in analysis different economic and determine of key sectors in all countries It is obvious that key sectors from input-output table with difference versions of classification will be differ from each other. The results show that revision of classification not only changes the rank of sectors but also the key sectors will be different from each other. When input-output tables is based on classification of ISIC, Rev2, five sectors is determined as economic key sectors that is consists of: manufacture of wood and products of wood, manufacture of paper and paper products, manufacture of basic metals, Manufacture of machinery and equipment, tools and metal products, and electricity and while considered version 3.1 four sectors will be defined as key sectors that is consists of Manufacture of paper and paper products, Manufacture of machinery and equipment n.e.c., Manufacture of machinery office, accounting and calculating machinery and Manufacture of motor vehicles, trailers and semi-trailers. The difference in results observed in other studies could also be the basis for planning and decision is important. Therefore, it is essential with the economic and social developments, the emergence of new businesses and technology, International Classification of economic activities will be reviewed. References 1. Dietzenbacher,E (1988), Perturbations of matrices: A theorem on the perron vector and its applications to input-output models, Journal of Economics, 48(4): Robles Teigeiro, L. and Sanjuán Solís, J., KEY SECTORS: BIG COEFFICIENTS AND IMPORTANT COEFFICIENTS IN SPAIN. Available [Accessed November 26, 2012]. 3. International Standard Industrial Classification of All Economic Activities Revision 3 & 4 12