Sectors of economy

Sectors of economy

Concept:

• The economy is divided into the domestic economy and the rest of the world. The domestic economy comprises all resident economic units (entities).
• Institutional  (economic) unit is an economic entity capable, in its own rights, of institution owning assets; incurring liability engaging in economic activities and in transactions with other entities having a complete set of accounts.

There are three sectors of domestic economy: 

I. General government sector includes All departments, establishments, and bodies of its central and local governments located in its territory; the embassies, consulates, representations, military establishments of the particular country’s general government located elsewhere.

• The sub-sectors: Central government, Regional government, Local government ,Social security funds

II. Real sector: It consists of enterprises (nonfinancial corporations), households and nonprofit institutions serving households, in some cases combined into one subsector named “Other resident sector.

a. Individuals or groups of persons in the form of households:

• They share the same living accommodation; pool some or all of their resources, income and wealth; consume certain types of goods and services collectively and may engage in  production activity.
• In the case of activity  there is no segregation between the inventory of the enterprise created by the household and the owners’ private inventory, i.e. such an enterprise  is subject to unlimited liability.
• The four sub sectors: Self-employed or entrepreneurs (employers), Own-account workers; Employees, Recipients of property and transfer income

b. Nonprofit Institutions Serving Households Sector 

• This sector comprises noncommercial organizations engaged in production of non market goods and services.
• These goods and services are provided to individual households or to the entire community without charge or at prices that are not economically significant. The institutions that are controlled and financed mainly by government units are not included in this sector, since they are included into the general government sector.

III. Financial sector: The financial sector can be divided into two major sectors: Financial intermediaries, and Financial auxiliaries.

A) Auxiliary financial activities: Those corporations that engage in provision of auxiliary financial services are not financial intermediaries since they do not incur liabilities on their own account for acquiring financial assets, but provide services that are auxiliary to financial intermediation.

• The corporations are: Stock exchanges and organized foreign exchange and securities markets, Depositaries and clearing organizations, Brokers and dealers; Foreign currency exchange companies, Nonprofit institutions, Organizations dealing with financial guarantees; Organizations dealing with financial derivatives, etc.

B) Financial intermediation may be defined as a productive activity in which an institutional unit incurs liabilities on its own account to acquire financial assets through financial market transactions.