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Encyclopedia > Gross domestic product
CIA World Factbook 2007 figures of total nominal GDP (top) compared to PPP-adjusted GDP (bottom).
CIA World Factbook 2007 figures of total nominal GDP (top) compared to PPP-adjusted GDP (bottom).
World map showing GDP PPP Per capita.
World map showing GDP PPP Per capita.

The gross domestic product, or GDP, of a country is one of the ways of measuring the size of its economy. GDP is defined as the total market value of all final goods and services produced within a given country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value. GDP is an acronym which can stand for more than one thing: in economics an abbreviation for Gross Domestic Product in neuroscience an abbreviation for Giant Depolarizing Potentials in biochemistry an abbreviation for guanosine diphosphate in baseball an abbreviation for grounded into double play in computer science an abbreviation for... Image File history File links Download high-resolution version (1541x1283, 114 KB)One colour scheme version of previous map Licensing I, the creator of this work, hereby grant the permission to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1. ... Image File history File links Download high-resolution version (1541x1283, 114 KB)One colour scheme version of previous map Licensing I, the creator of this work, hereby grant the permission to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1. ... World Factbook 2004 cover The World Factbook is an annual publication by the Central Intelligence Agency of the United States with basic almanac-style information about the various countries of the world. ... A nominal is a word or a group of words that functions as a noun, i. ... PPP of GDP for the countries of the world (2003). ... Market capitalization, often abbreviated to market cap, mkt. ...


The most common approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + gross investment + government spending + (exportsimports), or,
GDP = C + I + G + (X-M)

"Gross" means depreciation of capital stock is not subtracted. If we substitute gross investment by net investment (which is gross investment minus depreciation) in the equation above, then we obtain the formula for net domestic product. Consumption and investment in this equation are expenditure on final goods and services. The exports-minus-imports part of the equation (often called net exports) adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic area (the exports). In economics, consumption refers to the final use of goods and services to provide utility. ... Invest redirects here. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... Declining-balance depreciation of a $50,000 asset with $6,500 salvage value over 20 years. ... the economys total quantity of capital goods is called the capital stock This page is a candidate for speedy deletion. ... The Net Domestic Product (NDP) equals the Gross Domestic Product (GDP) minus depreciation on a countrys Capital (economics) goods. ...


Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are: Keynes redirects here. ... < [[[[math>Insert formula here</math>The public sector is that part of economic and administrative life that deals with the delivery of goods and services by and for the [[government </math></math></math></math> Direct administration funded through taxation; the delivering organisation generally has no specific requirement to meet commercial... Circulation in macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national economy as a whole. ...

  • Private consumption is a central concern of welfare economics. The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption.
  • If separated from endogenous private consumption, government consumption can be treated as exogenous,[citation needed] so that different government spending levels can be considered within a meaningful macroeconomic framework.

Contents

Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution associated with it. ... Look up Endogenous in Wiktionary, the free dictionary. ... Exogenous (or exogeneous) (from the Greek words exo and gen, meaning outside and production) refers to an action or object coming from outside a system. ...

GDP vs GNP

GDP can be contrasted with GNP or gross national product, which the United States used in its national accounts until 1992. The difference is that GNP includes net foreign income (the current account) rather than net exports (the balance of trade). Simplified, GNP adds net foreign investment income compared to GDP. Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. ... The balance of trade encompasses the activity of exports and imports, like the work of this cargo ship going through the Panama Canal. ...


GDP (or GDI - Gross Domestic Income) is concerned with the region in which income is generated. It is the market value of all the output produced in a nation in one year. GDP focuses on where the output is produced rather than who produced it. GDP measures all, disregarding the firms' nationality.


In contrast, GNP (or GNI - Gross National Income) is a measure of the value of the output produced by the "nationals" of a region. GNP focuses on who owns the production. For example, in the United States, GNP measures the value of output produced by American firms, regardless of where the firms are located.


Measuring GDP

The components of GDP

Each of the variables C, I, G and XM (where GDP = C + I + G + (X-M) as above)


(Note: * GDP is sometimes also referred to as Y in reference to a GDP graph)

  • C is private consumption in the economy. This includes most personal expenditures of households such as food, rent, medical expenses and so on but does not include new housing.
  • I is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households 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. The distinction is (in theory) clear: if money is converted into goods or services, it is investment; but, if you buy a bond or a share of stock, this transfer payment is excluded from the GDP sum. That is because the stocks and bonds affect the financial capital which in turn affects the production and sales which in turn affects the investments. So stocks and bonds indirectly affect the GDP. Although such purchases would be called investments in normal speech, from the total-economy point of view, this is simply swapping of deeds, and not part of real production or the GDP formula.
  • G is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase 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.
  • X is gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.
  • M is 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.

It is important to understand the meaning of each variable precisely in order to: The household is the basic unit of analysis in many microeconomic and government models. ... In economics, a business is a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers, usually in an effort to generate profit. ... Capital has a number of related meanings in economics, finance and accounting. ... This article is about mineral extractions. ... Computer software (or simply software) refers to one or more computer programs and data held in the storage of a computer for some purpose. ... This article does not cite any references or sources. ... // This article does not cite any references or sources. ... For alternative meanings, see bond (a disambiguation page). ... For other uses, see Stock (disambiguation). ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ... An English deed written on fine parchment or vellum with seal tag dated 1638. ... Nominal value is the value of anything expressed in money of the day, versus real value which removes the effect of inflation. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... A civil servant or public servant is a civilian career public sector employee working for a government department or agency. ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ... Social security primarily refers to social welfare service concerned with social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. ... Unemployment benefits are sums of money given to the unemployed by the government or a compulsory para-governmental insurance system. ... Look up supply in Wiktionary, the free dictionary. ...

  • Read national accounts.
  • Understand Keynesian or neo-classical macroeconomics.

Keynesian economics (pronounced kainzian, IPA ), also called Keynesianism, or Keynesian Theory, is an economic theory based on the ideas of the 20th-century British economist John Maynard Keynes. ... Neoclassical economics is the grouping of a number of schools of thought in economics. ...

Examples of GDP component variables

Examples of C, I, G, & NX: If you spend money to renovate your hotel so that occupancy rates increase, that is private investment, but if you buy shares in a consortium to do the same thing it is saving. The former is included when measuring GDP (in I), the latter is not. However, when the consortium conducted its own expenditure on renovation, that expenditure would be included in GDP. // This article does not cite any references or sources. ...


If the hotel is your private home your renovation spending would be measured as Consumption, but if a government agency is converting the hotel into an office for civil servants the renovation spending would be measured as part of public sector spending (G).


If the renovation involves the purchase of a chandelier from abroad, that spending would also be counted as an increase in imports, so that NX would fall and the total GDP is affected by the purchase. (This highlights the fact that GDP is intended to measure domestic production rather than total consumption or spending. Spending is really a convenient means of estimating production.) A contemporary chandelier in the Galt House in Louisville, Kentucky. ...


If you are paid to manufacture the chandelier to hang in a foreign hotel the situation would be reversed, and the payment you receive would be counted in NX (positively, as an export). Again, we see that GDP is attempting to measure production through the means of expenditure; if the chandelier you produced had been bought domestically it would have been included in the GDP figures (in C or I) when purchased by a consumer or a business, but because it was exported it is necessary to 'correct' the amount consumed domestically to give the amount produced domestically. (As in Gross Domestic Product.) suck my doodle ...


Types of GDP and GDP growth

World map showing GDP real growth rates for 2007.
World map showing GDP real growth rates for 2007.
  1. Current GDP is GDP expressed in the current prices of the period being measured
  1. Nominal GDP growth is GDP growth in nominal prices (unadjusted for price changes).
  1. Real GDP growth is GDP growth adjusted for price changes.

Calculating real prices allows economists to determine if production increased or decreased, regardless of changes in the purchasing power of the currency.


The GDP income account

Another way of measuring GDP is to measure the total income payable in the GDP income accounts. In this situation, one will sometimes hear of Gross Domestic Income (GDI), rather than Gross Domestic Product. This should provide the same figure as the expenditure method described above. (By definition, GDI=GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies.)


The formula for GDP measured using the income approach, called GDP(I), is:

GDP = Compensation of employees + Gross operating surplus + Gross mixed income + Taxes less subsidies on production and imports
  • Compensation of employees (COE) measures the total remuneration to employees for work done. It includes wages and salaries, as well as employer contributions to social security and other such programs.
  • Gross operating surplus (GOS) is the surplus due to owners of incorporated businesses. Often called profits, although only a subset of total costs are subtracted from gross output to calculate GOS.
  • Gross mixed income (GMI) is the same measure as GOS, but for unincorporated businesses. This often includes most small businesses.

The sum of COE, GOS and GMI is called total factor income, and 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 at factor cost to GDP(I). Compensation of employees (CE) is a statistical term used in national accounts, Balance of Payments statistics and sometimes in corporate accounts as well. ... This article needs to be wikified. ... Social security primarily refers to social welfare service concerned with social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. ... This article or section does not cite any references or sources. ...


Another formula can be written as this:

GDP = R + I + P + SA + W

where R = rents
I = interests
P = profits
SA = statistical adjustments (corporate income taxes, dividends, undistributed corporate profits)
W = wages


Measurement

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, Organization 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). The United Nations System of National Accounts is an international standard system of social accounts, first published in 1953. ... IMF redirects here. ... The Organisation for Economic Co-operation and Development (OECD) is an international organization of those developed countries that accept the principles of representative democracy and a free market economy. ... UN and U.N. redirect here. ... The World Bank logo The World Bank (the Bank) is a part of the World Bank Group (WBG), is a bank that makes loans to developing countries for development programs with the stated goal of reducing poverty. ...


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

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).

  • Argentina: Instituto Nacional de Estadística y Censos (INDEC)
  • Albania Instituti nderkombetare i statistikave .
  • Australia: Australian Bureau of Statistics (ABS), Reserve Bank of Australia (RBA).
  • Austria: Statistik Austria.
  • Bangladesh: Bangladesh Bureau of Statistics
  • Belgium: Directorate-general Statistics Belgium
  • Bosnia and Herzegovina: Federal office of statistics (FBIH) and Republika Srpska institute of statistics (RS)
  • Brazil: Instituto Brasileiro de Geografia e Estatística (IBGE).
  • Bulgaria: Национален статистически институт, National Statistical Institute (NSI).
  • Chile: Instituto Nacional de Estadísticas (INE).
  • China, People's Republic of: 中华人民共和国国家统计局/National Bureau of Statistics of China.
  • China, Republic of: 行政院主計處/Directorate-General of Budget, Accounting and Statistics.
  • Colombia: Departamento Administrativo Nacional de Estadistica (DANE).
  • Costa Rica: Banco Central de Costa Rica (BCCR).
  • Croatia: Central Bureau of Statistics (CROSTAT).
  • Canada: Statistics Canada (StatCan).
  • Cyprus: Στατιστική Υπηρεσία της Κυπριακής Δημοκρατίας (CYSTAT).
  • Czech Republic: Český statistický úřad (ČSÚ).
  • Denmark: Danmarks Statistik.
  • Dominican Republic: Central Bank of the Dominican Republic
  • Estonia: Eesti Statistikaamet
  • Finland: Tilastokeskus;
  • France: Institut National de la Statistique et des Etudes Economiques (INSEE);
  • Germany: Statistisches Bundesamt;
  • Greece: Εθνική Στατιστική Υπηρεσία Ελλάδος (ΕΣΥΕ);
  • Hong Kong: 政府統計處/Census and Statistics Department;
  • Hungary: Hungarian Central Statistical Office;
  • Iceland: Statistics Iceland;
  • India: Government of India Ministry of Statistics and Programme Implementation;
  • Indonesia: Badan Pusat Statistik (BPS);
  • Israel: Israel Central Bureau of Statistics;
  • Italy: Istituto Nazionale di Statistica (ISTAT);
  • Japan: 経済産業省/Ministry of Economy, Trade and Industry (METI);
  • Jamaica: Statistical Institute of Jamaica (STATIN);
  • Korea (South): 통계청/National Stastical Office (NSO);
  • Kosovo: Enti i Statistikës së Kosovës (ESK);
  • Latvia: Centrālā statistikas pārvalde;
  • Lithuania: Lietuvos Statistikos Departamentas (Department of Statistics, Lithuania);
  • Luxembourg: Service central de la statistique et des études économiques (Luxembourg Statistics);
  • Macedonia: [2] (Zavod za Statistika na Makedonija);
  • Malaysia: Jabatan Perangkaan Malaysia (Department of Statistics, Malaysia);
  • Macau: Direcção dos Serviços de Estatística e Censos (DSEC);
  • Mexico: Instituto Nacional de Estadística, Geografía e Informática (INEGI);
  • Moldova: Biroul Naţional de Statistică (BNS);
  • The Netherlands: Centraal Bureau voor de Statistiek (Statistics Netherlands);
  • New Zealand: Statistics New Zealand (Statistics New Zealand - Tatauranga Aotearoa).
  • Norway: Statistisk Sentralbyrå
  • Pakistan: Federal Bureau of Statistics.
  • Palestine : Palestinian Central Bureau of Statistics (PCBS)
  • Peru: Instituto Nacional de Estadística e Informática (INEI).
  • Philippines: Philippine National Statistical Coordination Board
  • Poland: Central Statistical Office (Główny Urząd Statystyczny; GUS)
  • Portugal: Instituto nacional de Estatística (National Statistics Office).
  • Republic of Ireland Príomhoifig Staidrimh na hÉireann/Central Statistics Office Ireland
  • Romania: Institutul National de Statistica
  • Russia: Federal Service of State Statistics (Rosstat).
  • Saudi Arabia: (وزارة الاقتصاد والتخطيط)
  • Serbia: Republički zavod za statistiku
  • Singapore: Statistics Singapore
  • Slovakia: Štatistický úrad SR.
  • Slovenia: Statistični urad Republike Slovenije (SURS).
  • South Africa: Statistics South Africa (STATSSA).
  • Spain: Instituto Nacional de Estadística (INE).
  • Sweden: Statistiska Centralbyrån (SCB).
  • Switzerland: Swiss Statistics.
  • Qatar: Qatar Statistics Auothority; The plannong councle[ http://www.planning.gov.qa/ ]
  • Turkey: Türkiye İstatistik Kurumu (TUIK).
  • Ukraine: State Statistics Committee of Ukraine (Derzhkomstat; SSC)
  • United Kingdom: Office for National Statistics (ONS).
  • United States: Bureau of Economic Analysis (BEA).
  • Uruguay: Instituto Nacional de Estadística (INE).
  • Venezuela: Instituto Nacional de Estadística (INE).
  • Vietnam: Tổng cục Thống kê/General Statistics Office (GSO).

GDP can measure spending on all goods and services. GDP can also measure all income earned. National Statistics and Censuses Institute (Spanish: Instituto Nacional de Estadística y Censos, INDEC) is the Argentine government agency responsible for the collection and processing of statistical data. ... Australian Bureau of Statistics logo The Australian Bureau of Statistics (ABS) is the Australian government agency that collects and publishes statistical information about Australia. ... The Reserve Bank of Australia came into being on 14 January 1960 to operate as Australias central bank and banknote issuing authority. ... Statistics Canada (French: Statistique Canada) is the Canadian federal government department commissioned with producing statistics to help better understand Canada, its population, resources, economy, society, and culture. ... Israel Central Bureau of Statistics (הלשכה המרכזית לסטטיסטיקה) is a state organization for the creation and maintenance of numeric data related to populations vis-à-vis the ethnic makeup of Israel and its cities. ... This article is about the Korean civilization. ... For other uses, see Kosovo (disambiguation). ... Motto: Je Maintiendrai (Dutch: Ik zal handhaven, English: I Shall Uphold) Anthem: Wilhelmus van Nassouwe Capital Amsterdam1 Largest city Amsterdam Official language(s) Dutch2 Government Parliamentary democracy Constitutional monarchy  - Queen Beatrix  - Prime minister Jan Peter Balkenende Independence Eighty Years War   - Declared July 26, 1581   - Recognised January 30, 1648 (by Spain... A 2003 satellite image of the region. ... Central Statistical Office (Polish: Główny UrzÄ…d Statystyczny or GUS) is the main government executive agency of Poland charged with the collection and publication of statistics related to the economy, population and society of the Poland, at both national and local levels. ... State Statistics Committee of Ukraine (Ukrainian: , Derzhavnyi Komitet Statystyky UkraÑ–ny) is the government agency responsible for collection and dissemination of statistics in Ukraine. ... The Bureau of Economic Analysis (BEA) is an agency in the United States Department of Commerce that provides a comprehensive statistical picture of the economy of the United States. ...


Interest rates

Net interest expense is a transfer payment in all sectors except the financial sector. Net interest expenses in the financial sector is seen as production and value added and is added to GDP. In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ...


Cross-border comparison

The level of GDP in different countries may be compared by converting their value in national currency according to either

The relative ranking of countries may differ dramatically between the two approaches. The Currency Market or Foreign Exchange Market is one of the largest markets in the world. ... PPP of GDP for the countries of the world (2003). ... USD redirects here. ...

  • The current exchange rate method converts the value of goods and services using global currency exchange rates. This can offer better indications of a country's international purchasing power and relative economic strength. For instance, if 10% of GDP is being spent on buying hi-tech foreign arms, the number of weapons purchased is entirely governed by current exchange rates, since arms are a traded product bought on the international market (there is no meaningful 'local' price distinct from the international price for high technology goods).
  • The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets. (For example, India ranks 13th by GDP but 4th by PPP). The PPP method of GDP conversion is most relevant to non-traded goods and services.

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. In finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. ... For other uses, see Weapon (disambiguation). ... The Penn effect is the economic finding that real income ratios between high and low income countries are systematically exaggerated by GDP conversion at market exchange rates. ...


For more information see Measures of national income and output. Template:Push up GNP redirects here. ...


GDP and the health of an economy

GDP and standard of living

World GDP per capita changed very little for most of human history before the industrial revolution. (Note the empty areas mean no data, not very low levels. There are data for the years 1, 1000, 1500, 1600, 1700, 1820, 1900, and 2003.)
World GDP per capita changed very little for most of human history before the industrial revolution. (Note the empty areas mean no data, not very low levels. There are data for the years 1, 1000, 1500, 1600, 1700, 1820, 1900, and 2003.)

GDP per capita is often used as an indicator of standard of living in an economy. While this approach has advantages, many criticisms of GDP focus on its use as a sole indicator of standard of living. Image File history File links Download high resolution version (1023x783, 44 KB) Summary Data Source: Angus Maddisons World Population, GDP and Per Capita GDP, 1-2003 AD (This Microsoft Excel file can also be read by using the free Open office) at The Groningen Growth and Development Centre. ... Image File history File links Download high resolution version (1023x783, 44 KB) Summary Data Source: Angus Maddisons World Population, GDP and Per Capita GDP, 1-2003 AD (This Microsoft Excel file can also be read by using the free Open office) at The Groningen Growth and Development Centre. ... A Watt steam engine, the steam engine that propelled the Industrial Revolution in Britain and the world. ... The standard of living refers to the quality and quantity of goods and services available to people and the way these services and goods are distributed within a population. ...


The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently; frequently in that most countries provide information on GDP on a quarterly basis (which allows a user to spot trends more quickly), widely in that some measure of GDP is available for practically every country in the world (allowing crude comparisons between the standard of living in different countries), and consistently in that the technical definitions used within GDP are relatively consistent between countries, and so there can be confidence that the same thing is being measured in each country. For other uses, see Country (disambiguation). ... For other uses, see World (disambiguation). ...


The major disadvantage of using GDP as an indicator of standard of living is that it is not, strictly speaking, a measure of standard of living. GDP is intended to be a measure of particular types of economic activity within a country. Nothing about the definition of GDP suggests that it is necessarily a measure of standard of living. For instance, in an extreme example, a country which exported 100 per cent of its production and imported nothing would still have a high GDP, but a very poor standard of living.


The argument in favor of using GDP is not that it is a good indicator of standard of living, but rather that (all other things being equal) standard of living tends to increase when GDP per capita increases. This makes GDP a proxy for standard of living, rather than a direct measure of it. GDP per capita can also be seen as a proxy of labor productivity. As the productivity of the workers increases, employers must compete for them by paying higher wages. Conversely, if productivity is low, then wages must be low or the businesses will not be able to make a profit. This article does not cite its references or sources. ...


There are a number of controversies about this use of GDP. GDP redirects here. ...


Criticisms and limitations

GDP is widely used by economists to gauge the health of an economy, as its variations are relatively quickly identified. However, its value as an indicator for the standard of living is considered to be limited. Criticisms of how the GDP is used include: The standard of living refers to the quality and quantity of goods and services available to people and the way these services and goods are distributed within a population. ...

  • One main problem in estimating GDP growth over time is that the purchasing power of money varies in different proportion for different goods, so when the GDP figure is deflated over time, GDP growth can vary greatly depending on the basket of goods used and the relative proportions used to deflate the GDP figure. For example, in the past 80 years the GDP per capita of the United States if measured by purchasing power of potatoes, did not grow significantly. But if it is measured by the purchasing power of eggs, it grew several times.
  • Official GDP estimates may not take into account the black market, where the money spent is not registered, and the non-monetary economy, where no money comes into play at all, resulting in inaccurate or abnormally low GDP figures. For example, in countries with major business transactions occurring informally, portions of local economy are not easily registered. Bartering may be more prominent than the use of money, even extending to services (I helped you build your house ten years ago, so now you help me).
  • This mainstream economic analysis ignores externalities such as the environment, subsistence production and domestic work. The current system counts oil spills and wars as contributors to economic growth, while child-rearing and housekeeping are deemed valueless. The work of New Zealand economist, Marilyn Waring, has highlighted that if a concerted attempt to factor in unpaid work were made, then it would in part, undo the injustices of unpaid (and in some cases, slave) labour, and also provide the political transparency and accountability necessary for democracy. Also, when GDP is used as a measure of success over time, the amount of housework that was done 50 years ago compared to the present time is much greater. Thus, comparing GDP over time cannot take into account the changes in society and lifestyle.
  • It ignores voluntary work. For example, Linux contributes nothing to GDP, but it was estimated that it would have cost more than a billion US dollars for a commercial company to develop. Wikipedia, a free content online encyclopedia, is another example.
  • Very often different calculations of GDP are confused among each other. For cross-border comparisons one should especially regard whether it is calculated by purchasing power parity (PPP) method or current exchange rate method. Using the latter method to compare living standards is problematic, since it does not always reflect the real wealth of the citizens, ie. how much they are able purchase locally in relation to their income (see Penn effect).
  • Cross-border comparisons of GDP can be inaccurate as they do not take into account local differences in the quality of goods, even when adjusted for purchasing power parity. This type of adjustment to an exchange rate is controversial because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries. For instance, people in country A may consume the same number of locally produced apples as in country B, but apples in country A are of a more tasty variety. This difference in material well being will not show up in GDP statistics. This is especially true for goods that are not traded globally, such as housing.
  • GDP counts work that produces no net change or that results from repairing harm. For example, rebuilding after a natural disaster or war may produce a considerable amount of economic activity and thus boost GDP, but it would have been far better if the disaster had never occurred in the first place. The economic value of health care is another classic example—it may raise GDP if many people are sick and they are receiving expensive treatment, but it is not a desirable situation. Alternative economic measures, such as the standard of living or discretionary income per capita better measure the human utility of economic activity. See uneconomic growth.
  • Quality of life—human happiness—is determined by many other things than physical goods and services. Even the alternative economic measures of standard of living and discretionary income do not take these factors into account.
  • Cross border trade within companies distorts the GDP and is done frequently to escape high taxation. Examples include the German Ebay that evades German tax by doing business in Switzerland, and American companies that have founded holdings in the Republic of Ireland to "buy" their own products for cheap from their continental factories (without shipping) and selling them for profit via Ireland - thereby reducing their taxes and increasing the GDP of the Republic of Ireland.[citation needed]
  • People may buy cheap, low-durability goods over and over again, or they may buy high-durability goods less often. It is possible that the monetary value of the items sold in the first case is higher than that in the second case, in which case a higher GDP is simply the result of greater inefficiency and waste. (This is not always the case; durable goods are often more difficult to produce than flimsy goods, and consumers have a financial incentive to find the cheapest long-term option. With goods that are undergoing rapid change, such as in fashion or high technology, the short lifespan may increase customer satisfaction by allowing them to have newer products.)
  • GDP does not measure the sustainability of growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. For example, the large deposits of phosphates gave the people of Nauru one of the highest per capita incomes on earth, but since 1989 their standard of living has declined sharply as the supply has run out. Oil-rich states can sustain high GDPs without industrializing, but this high level would no longer be sustainable if the oil runs out. Economies experiencing an economic bubble, such as a housing bubble or stock bubble, or a low private-saving rate tend to appear to grow faster due to higher consumption, mortgaging their futures for present growth. Economic growth at the expense of environmental degradation can end up costing dearly to clean up; GDP does not account for this.
  • As a measure of actual sale prices, GDP does not capture the economic surplus between the price paid and subjective value received, and can therefore underestimate aggregate utility.
  • The annual growth of real GDP is adjusted by using the "GDP deflator", which tends to underestimate the objective differences in the quality of manufactured output over time. (The deflator is explicitly based on subjective experience when measuring such things as the consumer benefit received from computer-power improvements since the early 1980s). Therefore the GDP figure may underestimate the degree to which improving technology and quality-level are increasing the real standard of living.
  • GDP does not take disparity in incomes between the rich and poor into account. See income inequality metrics for discussion of a variety of complementary economic measures.
  • GDP is often incorrectly used in (often unscientific and unrealistic) comparisons where net national worth (or national wealth) would be a more correct point of reference. For example, "person X could buy country Y, because his/her wealth is more than the GDP of that country". Net national worth is often equal to several years cumulative GDP [1] [2].

The limits of GDP (or GNP, a slightly different notion) can be summed up in the words of two critics. Robert Kennedy said[3]: It has been suggested that this article or section be merged into underground economy. ... Barter is a type of trade that do not use any medium of exchange, in which goods or services are exchanged for other goods and/or services. ... In economics, an externality is an impact (positive or negative) on anyone not party to a given economic transaction. ... Marilyn Waring (born 1952) is a renowned New Zealand feminist, an activist for female human rights, an author and an academic. ... This group of political volunteers is working to promote voter turn-out. ... This article is about operating systems that use the Linux kernel. ... This article is about operating systems that use the Linux kernel. ... Wikipedia (IPA: , or ( ) is a multilingual, web-based, free content encyclopedia project, operated by the Wikimedia Foundation, a non-profit organization. ... Free content is any kind of functional work, artwork, or other creative content upon which no legal restriction has been placed that significantly interferes with peoples freedom to use, understand, redistribute, improve, and share the content. ... PPP of GDP for the countries of the world (2003). ... The Penn effect is the economic finding that real income ratios between high and low income countries are systematically exaggerated by GDP conversion at market exchange rates. ... PPP of GDP for the countries of the world (2003). ... A physician visiting the sick in a hospital. ... The standard of living refers to the quality and quantity of goods and services available to people and the way these services and goods are distributed within a population. ... Disposable income is the amount of an individuals total income left after taxes, plus any transfer payments (grants) received from the government or elsewhere. ... For other uses, see Utility (disambiguation). ... Uneconomic growth, in welfare economics, human development theory and some forms of ecological economics, is economic growth which reflects or creates a decline in human well-being. ... The standard of living refers to the quality and quantity of goods and services available to people and the way these services and goods are distributed within a population. ... Disposable income is the amount of an individuals total income left after taxes, plus any transfer payments (grants) received from the government or elsewhere. ... This article is about the online auction center. ... Sustainable development is a socio-ecological process characterized by the fulfilment of human needs while maintaining the quality of the natural environment indefinitely. ... A phosphate, in inorganic chemistry, is a salt of phosphoric acid. ... bubbles are things that you make out of soap. ... The current US property bubble is the United States economic bubble in real estate following the stock market bubble in the 1990s called, among other things, the dot-com bubble. ... The term surplus is used in economics for several related quantities. ... For other uses, see Utility (disambiguation). ... In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the change in prices of all new, domestically produced, final goods and services in an economy. ... This article is in need of attention. ... Gordon Moores original graph from 1965 Growth of transistor counts for Intel processors (dots) and Moores Law (upper line=18 months; lower line=24 months) For the observation regarding information retrieval, see Mooers Law. ... Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of income among the participants in a particular economy, such as that of a specific country or of the world in general. ... Robert Kennedy Robert Francis Bobby Kennedy, also called RFK (November 20, 1925–June 6, 1968) was the younger brother of President John F. Kennedy, and was appointed by his brother as Attorney General for his administration. ...

The gross national product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and nuclear warheads... it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials. It measures everything, in short, except that which makes life worthwhile.

The second critic, Simon Kuznets the inventor of the GDP, in his very first report to the US Congress in 1934 said[4]: Simon Smith Kuznets (April 30, 1901 – July 8, 1985) was an American economist at Wharton School of the University of Pennsylvania who won the 1971 Nobel Prize in Economics for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social...

...the welfare of a nation [can] scarcely be inferred from a measure of national income...

In 1962, Kuznets stated[5]:

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.

Alternatives to GDP

GPI attempts to address many of the above criticisms by taking the same raw information supplied for GDP and then adjusts for income distribution, adds for the value of household and volunteer work, and subtracts for crime and pollution. The Genuine Progress Indicator (GPI) is a concept in green economics and welfare economics that has been suggested as a replacement metric for gross domestic product (GDP) as a metric of economic growth. ...

HDI uses GDP as a part of its calculation and then factors in indicators of life expectancy and education levels.

  • National Wealth

Many nations calculate a sum of all assets in a nation, but this again does not account for future obligations such as environmental degradation, asset bubbles, and debt.


Other less tangible calculations of the standard of living include:

Nations such as Bhutan have advocated this as a standard of living. (Bhutan claims to be the world's happiest nation.) It puts the well being of individuals on top of the nation's development agenda. Gross National Happiness (GNH) is an attempt to define a standard of living in more holistic and psychological terms than Gross National Product. ...

Scientists have posited a theory that uses human height as a reflection of how well (or badly) a country is doing in terms of diet, wealth, quality of housing, pollution, disease, and stress. They believe that a higher average height indicates a higher standard of living. The evidence for this has been outlined in the Time Magazine article "A Tall Story for Our Time," October 14, 1996. Stature redirects here. ...


Lists of countries by their GDP

World map of GDP (Nominal and PPP). ... Map of countries by 2006 GDP (nominal) per capita (IMF, October 2007). ... There are three lists of countries of the world sorted by their gross domestic product (GDP) (the value of all final goods and services produced within a nation in a given year). ... This article includes two lists of countries of the world[1] sorted by their gross domestic product (GDP) at purchasing power parity (PPP) per capita, the value of all final goods and services produced within a nation in a given year divided by the average population for the same year. ... This is a list of countries of the world sorted by their Gross Domestic Product (PPP converted) per hour worked. ... This article includes a list of countries of the world sorted by their gross domestic product (real) growth rate, the increase in value of all final goods and services produced within a nation in a given year -- not taking into account Purchasing power parity and taking into account the inflation. ... This is a list of countries by GDP (real) growth rate per capita. ... Map of countries by agricultural output Map of countries by industrial output Map of countries by services output This is a list of countries by GDP sector composition based on nominal GDP estimates and sector composition ratios provided by the CIA World Fact Book at market or government official exchange... The list below is of countries of the world sorted by their gross domestic product (GDP), the value of all final goods and services produced within a nation in a given year. ... The list below is of countries of the world by their gross domestic product per capita, the value of all final goods and services produced within a nation per capita, within a given year. ... This article includes a list of countries of the world sorted by their gross domestic product (GDP), the value of all final goods and services produced within a nation in a given year. ... The factual accuracy of this article is disputed. ... This is a list of the countries of the world in order of Gross domestic product (GDP), based on exchange rates, not on purchasing power parity. ...

See also

World GDP/capita changed very little for most of human history before the industrial revolution. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the change in prices of all new, domestically produced, final goods and services in an economy. ... The Genuine Progress Indicator (GPI) is a concept in green economics and welfare economics that has been suggested as a replacement metric for gross domestic product (GDP) as a metric of economic growth. ... Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. ... Green Gross Domestic Product (Green GDP) is an index of economic growth with the environmental consequences of that growth factored in. ... Gross National Happiness (GNH) is an attempt to define a standard of living in more holistic and psychological terms than Gross National Product. ... Gross Output is an economic concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the US National Income and Product Accounts (NIPA). ... The Gross value added is GDP - taxes on products + subsidies on products = GVA GVA + taxes on products - subsidies on products = GDP See also Measures of national income and output External links GVA - Gross Value Added ... Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of income among the participants in a particular economy, such as that of a specific country or of the world in general. ... Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA) and the US National Income and Product Accounts (NIPA). ... Template:Push up GNP redirects here. ... Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. ... Natural gross domestic product (natural GDP) is defined as the optimal production capacity of a territorys economy given natural and institutional constraints. ... PPP of GDP for the countries of the world (2003). ... World map indicating Human Development Index (as of 2004). ...  Newly industrialized countries  Other emerging markets  Other developing economies  High income  Upper-middle income  Lower-middle income  Low income A developing country is that country which has a relatively low standard of living, an undeveloped industrial base, and a moderate to low Human Development Index (HDI) score and per capita... Map of the Least Developed Countries as defined by the United Nations Least Developed Countries (LDCs or Fourth World countries) are countries which according to the United Nations exhibit the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world. ...  High income  Upper-middle income  Lower-middle income  Low income A High income country is defined by the World Bank as a country with a Gross National Income per capita of $11,116 or more. ... Countries considered NICs as of 2007 The category of newly industrialized country (NIC) is a socioeconomic classification applied to several countries around the world by political scientists and economists. ... The 38 states recognized as the Heavily Indebted Poor Countries (HIPC). ... The Three Worlds theory is a theory developed by Mao Zedong that suggests that the world is politically and economically divided into three world. ... The terms First World, Second World, and Third World were used to divide the nations of Earth into three broad categories. ... A map of countries often considered to have made up the Second World from the 1950s through to the 1980s. ... For the Jamaican reggae band, see Third World (band). ... Fourth World may mean: Fourth World, a term most commonly used to collectively describe notably marginalised or oppressed groups, in particular indigenous peoples, living in Third or First World countries. ... A country is a geographical territory, both in the sense of nation (a cultural entity) and state (a political entity). ... Gross Domestic Product (GDP), a calculation method in national accounting (see Measures of national income and output) is defined as the total value of final goods and services produced within a countrys borders in a year, regardless of ownership. ... World map of GDP (Nominal and PPP). ... Map of countries by 2006 GDP (nominal) per capita (IMF, October 2007). ... There are three lists of countries of the world sorted by their gross domestic product (GDP) (the value of all final goods and services produced within a nation in a given year). ... This article includes two lists of countries of the world[1] sorted by their gross domestic product (GDP) at purchasing power parity (PPP) per capita, the value of all final goods and services produced within a nation in a given year divided by the average population for the same year. ... This is a list of countries of the world sorted by their Gross Domestic Product (PPP converted) per hour. ... This talks about the countries in the Human Development Index, for information on the Human Development Index, please Click Here World map indicating Human Development Index (2007) (Colour-blind compliant map) For red-green color vision problems. ... The Human Poverty Index is an indication of the standard of living in a country, developed by the United Nations (UN). ... Map of world poverty by country, showing percentage of population below national poverty line. ... Literacy is the ability to use text to communicate across space and time. ... World literacy rates by country, based on The World Factbook. ...

References

  1. ^ Column on US national net worth.
  2. ^ National net worth per person for different countries.
  3. ^ Measuring Progress: Annex 1-What's wrong with the GDP?, Friends of the Earth. March 13, 2003. [1]
  4. ^ Simon Kuznets, 1934. "National Income, 1929-1932". 73rd US Congress, 2d session, Senate document no. 124, page 7. http://library.bea.gov/u?/NI_reports,539
  5. ^ Simon Kuznets. "How To Judge Quality". The New Republic, October 20, 1962

External links

Global

  • Australian Bureau of Statistics Manual on GDP measurement
  • GDP-indexed bonds
  • GDP scaled maps
  • Euro area GDP growth rate (since 1996) as compared to the Bank Rate (since 2000)

Data

  • Bureau of Economic Analysis: Official United States GDP data
  • Historicalstatistics.org: Links to historical statistics on GDP for different countries and regions
  • Complete listing of countries by GDP: Current Exchange Rate Method Purchasing Power Parity Method
  • Historical US GDP (1790 to 2005)

Articles and books

  • What's wrong with the GDP?
  • Limitations of GDP Statistics by Schenk, Robert.
  • whether output and CPI inflation are mismeasured, by Nouriel Roubini and David Backus, in Lectures in Macroeconomics
  • "Measurement of the Aggregate Economy", chapter 22 of Dr. Roger A. McCain's Essential Principles of Economics: A Hypermedia Text
  • Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800-2000 by Rodney Edvinsson
  • Clifford Cobb, Ted Halstead and Jonathan Rowe. "If the GDP is up, why is America down?" The Atlantic Monthly, vol. 276, no. 4, October 1995, pages 59-78.

  Results from FactBites:
 
Encyclopedia4U - Gross domestic product - Encyclopedia Article (321 words)
The Gross domestic product (GDP) is a measure used in economics of the size of a territory's economy.
GDP differs from gross national product in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.
GDPs of different countries may be compared by converting their value in national currency according to either (a) exchange rates prevailing on international currency markets, or (b) the purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).
  More results at FactBites »

 
 

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