Fixed Base Year vs. Chain Linking in National Accounts: Experience of Sub-Saharan African Countries

IMF Working Papers, July 8, 2016

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Canonical URL: Fixed Base Year vs. Chain Linking in National Accounts: Experience of Sub-Saharan African Countries

Two approaches for producing volume estimates of GDP are compared: fixed base year and annual chaining.
Most advanced economies adopted the chain-linked approach in the past twenty years, while some African countries remain hesitant because of computation and data requirements, and resource constraints.
Using detailed data provided by three Sub-Saharan African countries, simulations were run to assess differences in GDP growth estimates under the two approaches.
Key conclusions:
- The differences of GDP growth using the two approaches are small.
- Differences do not behave in the consistent way found in advanced countries.
- Weak deflation techniques and overly aggregated classifications used to derive volume measures can lead to large distortions.
- Recommendation: improved deflation techniques and detailed classification should be addressed before adopting chain linking.

Simulations based on detailed data from three Sub-Saharan African countries.
Comparative assessment of fixed base year versus annual chaining for producing volume estimates of GDP.
Consideration of computation and data requirements, and resource constraints faced by some African countries.

Differences in GDP growth estimates between fixed base year and chain linking:
- Small in magnitude based on the simulations.
- Not consistent with patterns observed in advanced economies.
Sources of larger distortions identified:
- Weak deflation techniques.
- Overly aggregated classifications for deriving volume measures.

Prioritize improving deflation techniques before adopting chain linking.
Adopt more detailed classification schemes when deriving volume measures.
Address computation and data requirement challenges and resource constraints as part of transition planning to chain linking.

Subjects: Deflation, Economic sectors, GDP measurement, Manufacturing, National accounts, Price indexes, Prices
Keywords: base year, chain, chain linking, CPI, Deflation, deflation technique, expenditure data, fixed base year, GDP measurement, Manufacturing, Price indexes, reference year, Sub-Saharan Africa, Sub-Saharan African, System of National Accounts, volume growth, volume measure, volume measures, WP