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I am currently working with Value Added at current price per industry per country per year (VALU variable available on OECD stats) and I'm trying to use the Value Added for all the European Countries (27) for the period between 2008-2018 as one variable in a dataset to do regressions (CO2 per industry per country per year on Value added per industry per country per year) and draw insights. I'm particulary interested into knowing if there is a greenifications of the industries (by the decreasing of CO2 gases per industry) and for which industry in terms of value added ?

The data concerning the value added per industry can be found here : https://stats.oecd.org/Index.aspx?DataSetCode=STANI4_2020

The data concerning the CO2 can be found here : https://stats.oecd.org/Index.aspx?DataSetCode=AEA

The Value Added is either epxressed in current prices (VALU variable), in volumes (VALK variable) or in deflator related variable (VALP).

My question is actually, how can I use the value added if I want to be able to make cross country comparisons knowing that these variables are expressed in the country currency (for example, in 2016 Czech Republic has Czech Koruna while Germany has Euros). I assume I have to :

  1. Convert them to a unique currency (in my case Euros seems logical, therefore looking for exchange rates per year per country)
  2. Deflate them (CPI or PPI or ?)

Is this correct ? How to know which deflator (in which currency) should I use and how should I use it ? And which year I should use if would like to deflate ?

Thank you very much

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  • $\begingroup$ What regression do you want to run, and what insights are you looking for? By the way, industrial output volumes is not the same as value added of the whole economy. That indicator should be available for all but the smallest European economies on their own. $\endgroup$
    – BrsG
    Jul 7, 2022 at 14:49
  • $\begingroup$ Hello BRSG, thank you for your answer. Sorry my late answer. I'm actually trying to see how CO2 estimates per industry relates to, among other variables, the value added of industries and try see if there is a sort of greenification of the industries. For this, I need to have the Value added per industry per country and CO2 estimates related to these industries. When you mention industrial output volume, you mean the amount of GDP per industry deflated with inflation (cpi ?) ? thank you again $\endgroup$
    – John
    Aug 8, 2022 at 10:53
  • $\begingroup$ I see. If national statistics institutes publish gross value added by industry, they often also publish this in volume terms. If they don't, it's difficult because the required deflators may differ significantly. If you can get PPI by (rough) sector, that might be the second best solution). $\endgroup$
    – BrsG
    Aug 8, 2022 at 11:06
  • $\begingroup$ Yes that was exactly my concern. There is though a variable in the OECD database (VALK) which is the value added per industry in volume terms (with the year fixed at 2015) [ref : Volume measures, such as production (PRDK), value added (VALK) and gross fixed capital formation (GFCK), are expressed in current prices of the reference year 2015, millions; ]. The thing there is that it is expressed in national currency, therefore do you think the solution here should be to just use the exchange rate between national currency and Euros for that particular year (not only 2015) and convert it ? $\endgroup$
    – John
    Aug 8, 2022 at 11:24
  • $\begingroup$ Think about exchange rates as prices (they are actually relative prices). So, to maintain comparability, you'd need to use the exchange rate of the reference year throughout. $\endgroup$
    – BrsG
    Aug 8, 2022 at 16:42

1 Answer 1

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To compare like for like, you will indeed need to make the data comparable across countries. Because C02 emissions are reported in volumes and the presumed link to output volumes, the appropriate measure for value-added would also be volumes.

The good news is that you have these volumes already (via the VALK indicators). However, these volume data still need to be converted into a common currency to be fully comparable. This is typically done by applying the respective cross rate in the reference year (for example, the zloty-euro rate in 2015) to the whole target series.

This kind of volume series is in constant prices and exchange rates. It represents a level shift of the original series, which preserves original growth rates and, at the same time, makes the data comparable across countries. A variant of this approach is to use Purchasing Power Parity (PPP) conversion factors when the analysis focuses on anything related to purchasing power.

As a side note, depending on the hypothesis you want to test, you might want to investigate whether value-added is the right explanatory variable for C02 emissions. Value-added can potentially vary without impacting emissions. The same OECD dataset also has data on intermediate inputs, which might be a more direct driver of emissions and interesting to look at.

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