Gross domestic product

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A map of world economies by size of GDP (nominal) in USD, World Bank, 2014. Countries by GDP (Nominal) in 2014.svg
A map of world economies by size of GDP (nominal) in USD, World Bank , 2014.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. [2] [3] GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market. [4]

Contents

The OECD defines GDP as "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production and services (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)". [5] An IMF publication states that, "GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year)." [6]

Total GDP can also be broken down into the contribution of each industry or sector of the economy. [7] The ratio of GDP to the total population of the region is the per capita GDP and the same is called Mean Standard of Living.

GDP is often used as a metric for international comparisons as well as a broad measure of economic progress. It is often considered to be the "world's most powerful statistical indicator of national development and progress". [8]

History

Quarterly gross domestic product Quarterly gross domestic product.png
Quarterly gross domestic product

William Petty came up with a basic concept of GDP to attack landlords against unfair taxation during warfare between the Dutch and the English between 1654 and 1676. [9] Charles Davenant developed the method further in 1695. [10] The modern concept of GDP was first developed by Simon Kuznets for a US Congress report in 1934. [11] In this report, Kuznets warned against its use as a measure of welfare [11] (see below under limitations and criticisms ). After the Bretton Woods conference in 1944, GDP became the main tool for measuring a country's economy. [12] At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by a country's citizens at home and abroad rather than its 'resident institutional units' (see OECD definition above). The switch from GNP to GDP in the US was in 1991, trailing behind most other nations. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. [13] A crucial role was played here by the US Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions.

The history of the concept of GDP should be distinguished from the history of changes in ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In the words of one academic economist "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." [14]

Determining gross domestic product (GDP)

An infographic explaining how GDP is calculated in the UK How is GDP calculated%3F.png
An infographic explaining how GDP is calculated in the UK

GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, or the speculated expenditure approach.

The most direct of the three is the production approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers", colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes. [15]

Production approach

Also known as Value Added Approach, it calculates how much value is contributed at each stage of production.

This approach mirrors the OECD definition given above.

  1. Estimate the gross value of domestic output out of the many various economic activities;
  2. Determine the intermediate consumption, i.e., the cost of material, supplies and services used to produce final goods or services.
  3. Deduct intermediate consumption from gross value to obtain the gross value added.

Gross value added = gross value of output – value of intermediate consumption.

Value of output = value of the total sales of goods and services plus value of changes in the inventory.

The sum of the gross value added in the various economic activities is known as "GDP at factor cost".

GDP at factor cost plus indirect taxes less subsidies on products = "GDP at producer price".

For measuring output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods:

  1. By multiplying the output of each sector by their respective market price and adding them together
  2. By collecting data on gross sales and inventories from the records of companies and adding them together

The value of output of all sectors is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost. Adding indirect tax minus subsidies to GVA (GDP) at factor cost gives the "GVA (GDP) at producer prices".

Income approach

The second way of estimating GDP is to use "the sum of primary incomes distributed by resident producer units". [5]

If GDP is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies.

This method measures GDP by adding incomes that firms pay households for factors of production they hire - wages for labour, interest for capital, rent for land and profits for entrepreneurship.

The US "National Income and Expenditure Accounts" divide incomes into five categories:

  1. Wages, salaries, and supplementary labour income
  2. Corporate profits
  3. Interest and miscellaneous investment income
  4. Farmers' incomes
  5. Income from non-farm unincorporated businesses

These five income components sum to net domestic income at factor cost.

Two adjustments must be made to get GDP:

  1. Indirect taxes minus subsidies are added to get from factor cost to market prices.
  2. Depreciation (or capital consumption allowance) is added to get from net domestic product to gross domestic product.

Total income can be subdivided according to various schemes, leading to various formulae for GDP measured by the income approach. A common one is:

GDP = compensation of employees + gross operating surplus + gross mixed income + taxes less subsidies on production and imports
GDP = COE + GOS + GMI + TP & MSP & M

The sum of COE, GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It measures the value of GDP at factor (basic) prices. The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP(I) at factor cost to GDP(I) at final prices.

Total factor income is also sometimes expressed as:

Total factor income = employee compensation + corporate profits + proprietor's income + rental income + net interest [16]

Expenditure approach

The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices. [5]

Market goods that are produced are purchased by someone. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring the total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP.

Components of GDP by expenditure

U.S. GDP computed on the expenditure basis. GDP Categories - United States.png
U.S. GDP computed on the expenditure basis.

GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M).

Y = C + I + G + (X − M)

Here is a description of each GDP component:

  • C (consumption) is normally the largest GDP component in the economy, consisting of private expenditures in the economy (household final consumption expenditure). These personal expenditures fall under one of the following categories: durable goods, nondurable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses, but not the purchase of new housing.
  • I (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in investment. In contrast to its colloquial meaning, "investment" in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products; buying an existing building will involve a positive investment by the buyer and a negative investment by the seller, netting to zero overall investment.
  • G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. Analyses outside the USA will often treat government investment as part of investment rather than government spending.
  • X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
  • M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic.

Note that C, G, and I are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and services are those used by businesses to produce other goods and services within the accounting year. [17] )

According to the U.S. Bureau of Economic Analysis, which is responsible for calculating the national accounts in the United States, "In general, the source data for the expenditures components are considered more reliable than those for the income components [see income method, above]." [18]

GDP and GNI

GDP can be contrasted with gross national product (GNP) or, as it is now known, gross national income (GNI). The difference is that GDP defines its scope according to location, while GNI defines its scope according to ownership. In a global context, world GDP and world GNI are, therefore, equivalent terms.

GDP is product produced within a country's borders; GNI is product produced by enterprises owned by a country's citizens. The two would be the same if all of the productive enterprises in a country were owned by its own citizens, and those citizens did not own productive enterprises in any other countries. In practice, however, foreign ownership makes GDP and GNI non-identical. Production within a country's borders, but by an enterprise owned by somebody outside the country, counts as part of its GDP but not its GNI; on the other hand, production by an enterprise located outside the country, but owned by one of its citizens, counts as part of its GNI but not its GDP.

For example, the GNI of the USA is the value of output produced by American-owned firms, regardless of where the firms are located. Similarly, if a country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets.

Gross national income (GNI) equals GDP plus income receipts from the rest of the world minus income payments to the rest of the world. [19]

In 1991, the United States switched from using GNP to using GDP as its primary measure of production. [20] The relationship between United States GDP and GNP is shown in table 1.7.5 of the National Income and Product Accounts . [21]

International standards

The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives of the International Monetary Fund, European Union, Organisation for Economic Co-operation and Development, United Nations and World Bank. The publication is normally referred to as SNA93 to distinguish it from the previous edition published in 1968 (called SNA68) [22]

SNA93 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.

National measurement

Countries by GDP (PPP) per capita (Int$) in 2017 according to the IMF
.mw-parser-output .legend{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .legend-color{display:inline-block;min-width:1.25em;height:1.25em;line-height:1.25;margin:1px 0;text-align:center;border:1px solid black;background-color:transparent;color:black}.mw-parser-output .legend-text{}
> 50,000
35,000-50,000
20,000-35,000
10,000-20,000
5,000-10,000
2,000-5,000
< 2,000
No data Countries by GDP (PPP) per capita in 2017.png
Countries by GDP (PPP) per capita (Int$) in 2017 according to the IMF
  > 50,000
  35,000–50,000
  20,000–35,000
  10,000–20,000
  5,000–10,000
  2,000–5,000
  < 2,000
  No data
Countries by 2018 GDP (nominal) per capita
>$60,000
$50,000 - $60,000
$40,000 - $50,000
$30,000 - $40,000
$20,000 - $30,000
$10,000 - $20,000
$5,000 - $10,000
$2,500 - $5,000
$1,000 - $2,500
<$1,000 CountriesByGDPPerCapitaNominal2018.png
Countries by 2018 GDP (nominal) per capita
  >$60,000
  $50,000 - $60,000
  $40,000 - $50,000
  $30,000 - $40,000
  $20,000 - $30,000
  $10,000 - $20,000
  $5,000 - $10,000
  $2,500 - $5,000
  $1,000 - $2,500
  <$1,000
U.S GDP computed on the income basis U.S. GDP Income Basis.png
U.S GDP computed on the income basis

Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required (especially information on expenditure and production by governments).

Nominal GDP and adjustments to GDP

The raw GDP figure as given by the equations above is called the nominal, historical, or current, GDP. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money – for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year.

For example, suppose a country's GDP in 1990 was $100 million and its GDP in 2000 was $300 million. Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as a base year. The result would be that the GDP in 2000 equals $300 million × one-half = $150 million, in 1990 monetary terms. We would see that the country's GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real, or constant, GDP.

The factor used to convert GDP from current to constant values in this way is called the GDP deflator . Unlike consumer price index, which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods. [23]

Constant-GDP figures allow us to calculate a GDP growth rate, which indicates how much a country's production has increased (or decreased, if the growth rate is negative) compared to the previous year.

Real GDP growth rate for year n
= [(Real GDP in year n) − (Real GDP in year n − 1)] / (Real GDP in year n − 1)

Another thing that it may be desirable to account for is population growth. If a country's GDP doubled over a certain period, but its population tripled, the increase in GDP may not mean that the standard of living increased for the country's residents; the average person in the country is producing less than they were before. Per-capita GDP is a measure to account for population growth.

Cross-border comparison and purchasing power parity

The level of GDP in countries may be compared by converting their value in national currency according to either the current currency exchange rate, or the purchasing power parity exchange rate.

The ranking of countries may differ significantly based on which method is used.

There is a clear pattern of the purchasing power parity method decreasing the disparity in GDP between high and low income (GDP) countries, as compared to the current exchange rate method. This finding is called the Penn effect.

For more information, see Measures of national income and output.

Standard of living and GDP: wealth distribution and externalities

GDP per capita is often used as an indicator of living standards. [24]

The major advantage of GDP per capita as an indicator of standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP on a quarterly basis, allowing trends to be seen quickly. It is measured widely in that some measure of GDP is available for almost every country in the world, allowing inter-country comparisons. It is measured consistently in that the technical definition of GDP is relatively consistent among countries.

GDP does not include several factors that influence the standard of living. In particular, it fails to account for:

It can be argued that GDP per capita as an indicator standard of living is correlated with these factors, capturing them indirectly. [24] [28] As a result, GDP per capita as a standard of living is a continued usage because most people have a fairly accurate idea of what it is and know it is tough to come up with quantitative measures for such constructs as happiness, quality of life, and well-being. [24]

Limitations and criticisms

Limitations at introduction

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements": [11]

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

In 1962, Kuznets stated: [29]

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

Further criticisms

Ever since the development of GDP, multiple observers have pointed out limitations of using GDP as the overarching measure of economic and social progress. For example, many environmentalists argue that GDP is a poor measure of social progress because it does not take into account harm to the environment. [30] [31]

Although a high or rising level of GDP is often associated with increased economic and social progress within a country, a number of scholars have pointed out that this does not necessarily play out in many instances. For example, Jean Drèze and Amartya Sen have pointed out that an increase in GDP or in GDP growth does not necessarily lead to a higher standard of living, particularly in areas such as healthcare and education. [32] Another important area that does not necessarily improve along with GDP is political liberty, which is most notable in China, where GDP growth is strong yet political liberties are heavily restricted. [33]

GDP does not account for the distribution of income among the residents of a country, because GDP is merely an aggregate measure. An economy may be highly developed or growing rapidly, but also contain a wide gap between the rich and the poor in a society. These inequalities often occur on the lines of race, ethnicity, gender, religion, or other minority status within countries.[ citation needed ] This can lead to misleading characterizations of economic well-being if the income distribution is heavily skewed toward the high end, as the poorer residents will not directly benefit from the overall level of wealth and income generated in their country. Even GDP per capita measures may have the same downside if inequality is high. For example, South Africa during apartheid ranked high in terms of GDP per capita, but the benefits of this immense wealth and income were not shared equally among the country.[ citation needed ] An inequality which the United Nations Sustainable Development Goal 10 amongst other global initiatives aims to address. [34]

GDP does not take into account the value of household and other unpaid work. Some, including Martha Nussbaum, argue that this value should be included in measuring GDP, as household labor is largely a substitute for goods and services that would otherwise be purchased for value. [35] Even under conservative estimates, the value of unpaid labor in Australia has been calculated to be over 50% of the country's GDP. [36] A later study analyzed this value in other countries, with results ranging from a low of about 15% in Canada (using conservative estimates) to high of nearly 70% in the United Kingdom (using more liberal estimates). For the United States, the value was estimated to be between about 20% on the low end to nearly 50% on the high end, depending on the methodology being used. [37] Because many public policies are shaped by GDP calculations and by the related field of national accounts, [38] the non-inclusion of unpaid work in calculating GDP can create distortions in public policy, and some economists have advocated for changes in the way public policies are formed and implemented. [39]

The UK's Natural Capital Committee highlighted the shortcomings of GDP in its advice to the UK Government in 2013, pointing out that GDP "focuses on flows, not stocks. As a result, an economy can run down its assets yet, at the same time, record high levels of GDP growth, until a point is reached where the depleted assets act as a check on future growth". They then went on to say that "it is apparent that the recorded GDP growth rate overstates the sustainable growth rate. Broader measures of wellbeing and wealth are needed for this and there is a danger that short-term decisions based solely on what is currently measured by national accounts may prove to be costly in the long-term".

It has been suggested that countries that have authoritarian governments, such as the People's Republic of China, and Russia, inflate their GDP figures. [40]

Research and development about the relation between GDP and use of GDP and reality

Shown is how the global material footprint and global CO2 emissions from fossil-fuel combustion and industrial processes changed compared with global GDP. Relative change in main global economic and environmental indicators from 1970 to 2017.webp
Shown is how the global material footprint and global CO2 emissions from fossil-fuel combustion and industrial processes changed compared with global GDP.

Instances of GDP measures have been considered numbers that are artificial constructs. [42] In 2020 scientists, as part of a World Scientists' Warning to Humanity-associated series, warned that worldwide growth in affluence in terms of GDP-metrics has increased resource use and pollutant emissions with affluent citizens of the world – in terms of e.g. resource-intensive consumption – being responsible for most negative environmental impacts and central to a transition to safer, sustainable conditions. They summarised evidence, presented solution approaches and stated that far-reaching lifestyle changes need to complement technological advancements and that existing societies, economies and cultures incite consumption expansion and that the structural imperative for growth in competitive market economies inhibits societal change. [43] [44] [41] Sarah Arnold, Senior Economist at the New Economics Foundation (NEF) stated that "GDP includes activities that are detrimental to our economy and society in the long term, such as deforestation, strip mining, overfishing and so on". [45] The number of trees that are net lost annually is estimated to be approximately 10 billion. [46] [47] The global average annual deforested land in the 2015–2020 demi-decade was 10 million hectares and the average annual net forest area loss in the 2000–2010 decade 4.7 million hectares, according to the Global Forest Resources Assessment 2020. [48] According to one study, depending on the level of wealth inequality, higher GDP-growth can be associated with more deforestation. [49] In 2019 "agriculture and agribusiness" accounted for 24 % of the GDP of Brazil, where a large share of annual net tropical forest loss occurred and is associated with sizable portions of this economic activity domain. [50] The number of obese adults was approximately 600 million (12%) in 2015. [51] In 2013 scientists reported that large improvements in health only lead to modest long-term increases in GDP per capita. [52] After developing an abstract metric similar to GDP, the Center for Partnership Studies highlighted that GDP "and other metrics that reflect and perpetuate them" may not be useful for facilitating the production of products and provision of services that are useful – or comparatively more useful – to society, and instead may "actually encourage, rather than discourage, destructive activities". [53] [54] Steve Cohen of the Earth Institute elucidated that while GDP does not distinguish between different activities (or lifestyles), "all consumption behaviors are not created equal and do not have the same impact on environmental sustainability". [55] Johan Rockström, director of the Potsdam Institute for Climate Impact Research, noted that "it's difficult to see if the current G.D.P.-based model of economic growth can go hand-in-hand with rapid cutting of emissions", which nations have agreed to attempt under the Paris Agreement in order to mitigate real-world impacts of climate change. [56] Some have pointed out that GDP did not adapt to sociotechnical changes to give a more accurate picture of the modern economy and does not encapsulate the value of new activities such as delivering price-free information and entertainment on social media. [57] In 2017 Diane Coyle explained that GDP excludes much unpaid work, writing that "many people contribute free digital work such as writing open-source software that can substitute for marketed equivalents, and it clearly has great economic value despite a price of zero", which constitutes a common criticism "of the reliance on GDP as the measure of economic success" especially after the emergence of the digital economy. [58] Similarly GDP does not value or distinguish for environmental protection. A 2020 study found that "poor regions' GDP grows faster by attracting more polluting production after connection to China's expressway system. [59] GDP may not be a tool capable of recognizing how much natural capital agents of the economy are building or protecting. [60] [ additional citation(s) needed ]

Proposals to overcome GDP limitations

In response to these and other limitations of using GDP, alternative approaches have emerged.

Lists of countries by their GDP

See also

Notes and references

  1. "GDP (Official Exchange Rate)" (PDF). World Bank . Retrieved August 24, 2015.
  2. "Finance & Development". Finance & Development | F&D. Retrieved 2019-02-23.
  3. "Gross Domestic Product | U.S. Bureau of Economic Analysis (BEA)". www.bea.gov. Retrieved 2019-02-23.
  4. Hall, Mary. "What Is Purchasing Power Parity (PPP)?". Investopedia. Retrieved 2019-02-23.
  5. 1 2 3 "OECD" . Retrieved 14 August 2014.
  6. Callen, Tim. "Gross Domestic Product: An Economy's All". IMF. Retrieved 3 June 2016.
  7. Dawson, Graham (2006). Economics and Economic Change. FT / Prentice Hall. p. 205. ISBN   0-273-69351-4.
  8. Lepenies, Philipp (2016). The Power of a Single Number: A Political History of GDP. New York: Columbia University strategy-3-1-33252415-37392257_9257a4574cf75f9d33bf6a486ecb145d these measures affects in greater extent, the GDP will already be drastically affected by the health crisis the world is experiencing by COVID-19, which will reduce these expectations.
  9. "Petty impressive". The Economist. 2013-12-21. Retrieved August 1, 2015.
  10. Coyle, Diane (2014-04-06). "Warfare and the Invention of GDP". The Globalist. Retrieved August 1, 2015.
  11. 1 2 3 Congress commissioned Kuznets to create a system that would measure the nation's productivity in order to better understand how to tackle the Great Depression.Simon Kuznets, 1934. "National Income, 1929–1932". 73rd US Congress, 2d session, Senate document no. 124, page 5-7 Simon Kuznets, 1934. "National Income, 1929–1932". 73rd US Congress, 2d session, Senate document no. 124, page 5-7 Simon Kuznets, 1934. "National Income, 1929–1932". 73rd US Congress, 2d session, Senate document no. 124, page 5-7. https://fraser.stlouisfed.org/title/971
  12. Dickinson, Elizabeth. "GDP: a brief history". ForeignPolicy.com. Retrieved 25 April 2012.
  13. Lepenies, Philipp (April 2016). The Power of a Single Number: A Political History of GDP. Columbia University Press. ISBN   9780231541435.
  14. Coyle, Diane (2014). GDP: A Brief but Affectionate History. Princeton University Press. p. 6. ISBN   9780691156798.
  15. World Bank, Statistical Manual >> National Accounts >> GDP–final output Archived 2010-04-16 at the Wayback Machine , retrieved October 2009.
    "User's guide: Background information on GDP and GDP deflator". HM Treasury. Archived from the original on 2009-03-02.
    "Measuring the Economy: A Primer on GDP and the National Income and Product Accounts" (PDF). Bureau of Economic Analysis.
  16. United States Bureau of Economic Analysis, "A guide to the National Income and Product Accounts of the United States" (PDF)., page 5; retrieved November 2009. Another term, "business current transfer payments", may be added. Also, the document indicates that the capital consumption adjustment (CCAdj) and the inventory valuation adjustment (IVA) are applied to the proprietor's income and corporate profits terms; and CCAdj is applied to rental income.
  17. Thayer Watkins, San José State University Department of Economics, "Gross Domestic Product from the Transactions Table for an Economy", commentary to first table, " Transactions Table for an Economy". (Page retrieved November 2009.)
  18. Concepts and Methods of the United States National Income and Product Accounts, chap. 2.
  19. Lequiller, François; Derek Blades (2006). Understanding National Accounts. OECD. p. 18. ISBN   978-92-64-02566-0. To convert GDP into GNI, it is necessary to add the income received by resident units from abroad and deduct the income created by production in the country but transferred to units residing abroad.
  20. United States, Bureau of Economic Analysis, Glossary, "GDP" Archived 2018-01-29 at the Wayback Machine . Retrieved November 2009.
  21. "U.S. Department of Commerce. Bureau of Economic Analysis". Bea.gov. 2009-10-21. Archived from the original on 2011-07-21. Retrieved 2010-07-31.
  22. "National Accounts". Central Bureau of Statistics. Archived from the original on 2011-04-16. Retrieved 2011-06-29.
  23. HM Treasury, Background information on GDP and GDP deflator
    Some of the complications involved in comparing national accounts from different years are explained in this World Bank document Archived 2010-06-16 at the Wayback Machine .
  24. 1 2 3 "How Do We Measure Standard of Living?" (PDF). The Federal Reserve Bank of Boston.
  25. Mankiw, N. G.; Taylor, M. P. (2011). Economics (2nd, revised ed.). Andover: Cengage Learning. ISBN   978-1-84480-870-0.
  26. 1 2 3 "Macroeconomics - GDP and Welfare" . Retrieved 2015-02-21.
  27. Choi, Kwan. "Gross Domestic Product". Introduction to the World Economy.
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  1. Based on the IMF data. If no data was available for a country from IMF, data from the World Bank is used

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Per capita income

Per capita income (PCI) or average income measures the average income earned per person in a given area in a specified year. It is calculated by dividing the area's total income by its total population.

A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income. All are specially concerned with counting the total amount of goods and services produced within the economy and by various sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.

Purchasing power parity (PPP) is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currencies. In many cases, PPP produces an inflation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of poverty, tariffs, and other transaction costs.

Bureau of Economic Analysis US federal government agency

The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official macroeconomic and industry statistics, most notably reports about the gross domestic product (GDP) of the United States and its various units—states, cities/towns/townships/villages/counties and metropolitan areas. They also provide information about personal income, corporate profits, and government spending in their National Income and Product Accounts (NIPAs).

Real gross domestic product is a macroeconomic measure of the value of economic output adjusted for price changes. This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate to get the growth of the real GDP. Different organizations use different types of 'Real GDP' measures, for example, the UNCTAD uses 2005 Constant prices and exchange rates while the FRED uses 2009 constant prices and exchange rates, and recently the World Bank switched from 2005 to 2010 constant prices and exchange rates.

Output in economics is the "quantity of goods or services produced in a given time period, by a firm, industry, or country", whether consumed or used for further production. The concept of national output is essential in the field of macroeconomics. It is national output that makes a country rich, not large amounts of money.

Genuine progress indicator

Genuine progress indicator (GPI) is a metric that has been suggested to replace, or supplement, gross domestic product (GDP). The GPI is designed to take fuller account of the well-being of a nation, only a part of which pertains to the size of the nation's economy, by incorporating environmental and social factors which are not measured by GDP. For instance, some models of GPI decrease in value when the poverty rate increases. The GPI separates the concept of societal progress from economic growth.

The national income and product accounts (NIPA) are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general economic activity in the United States.

Index of Sustainable Economic Welfare

The Index of Sustainable Economic Welfare (ISEW) is an economic indicator intended to replace the Gross Domestic Product, which is the main macroeconomic indicator of System of National Accounts (SNA). Rather than simply adding together all expenditures like the gross domestic product, consumer expenditure is balanced by such factors as income distribution and cost associated with pollution and other unsustainable costs. It is similar to the Genuine Progress Indicator (GPI).

Government spending Government consumptions, investments, and transfer payments

Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.

Gross national income Total domestic and foreign economic output claimed by residents of a country

The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents. Comparing GNI to GDP shows the degree to which a nation's GDP represents domestic or international activity. GNI has gradually replaced GNP in international statistics. While being conceptually identical, it is calculated differently. GNI is the basis of calculation of the largest part of contributions to the budget of the European Union. In February 2017, Ireland's GDP became so distorted from the base erosion and profit shifting ("BEPS") tax planning tools of U.S. multinationals, that the Central Bank of Ireland replaced Irish GDP with a new metric, Irish Modified GNI*. In 2017, Irish GDP was 162% of Irish Modified GNI*.

National accounts Accounting for nations

National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting. By design, such accounting makes the totals on both sides of an account equal even though they each measure different characteristics, for example production and the income from it. As a method, the subject is termed national accounting or, more generally, social accounting. Stated otherwise, national accounts as systems may be distinguished from the economic data associated with those systems. While sharing many common principles with business accounting, national accounts are based on economic concepts. One conceptual construct for representing flows of all economic transactions that take place in an economy is a social accounting matrix with accounts in each respective row-column entry.

Gross fixed capital formation

Gross fixed capital formation (GFCF) is a macroeconomic concept used in official national accounts such as the United Nations System of National Accounts (UNSNA), National Income and Product Accounts (NIPA) and the European System of Accounts (ESA). The concept dates back to the National Bureau of Economic Research (NBER) studies of Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted in the 1950s. Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and "pure" households less disposals of fixed assets. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed.

Value product

The value product (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production:

In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly to final output. As of first-quarter 2019, the Bureau of Economic Analysis estimated gross output in the United States to be $37.2 trillion, compared to $21.1 trillion for GDP.

Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by production during an accounting interval. The concept of net output is basically "gross revenue from production less the value of goods and services used up in that production". The idea is that if one deducts intermediate expenditures from the annual flow of income generated by production, one obtains a measure of the net new value in the new products created.

In economics, gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. "Gross value added is the value of output minus the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector; gross value added is the source from which the primary incomes of the SNA are generated and is therefore carried forward into the primary distribution of income account."

United Kingdom National Accounts – The Blue Book uk國際帳號

The annual United Kingdom National Accounts records and describes economic activity in the United Kingdom and as such is used by government, banks, academics and industries to formulate the economic and social policies and monitor the economic progress of the United Kingdom. It also allows international comparisons to be made. The Blue Book is published by the UK Office for National Statistics alongside the United Kingdom Balance of Payments – The Pink Book.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.