Gross domestic product

The gross domestic product (GDP) corresponds to the full value of the internal production of Biens and services in a country given during one year given by the agents resident inside the national territory. It is also the measurement of the income coming from the production in a given country. One speaks sometimes about annual economic production or simply about production.

In order to prevent that the same production between more once in calculation, belong to the GDP only the final Biens and services (i.e. the goods and services of consumption and the capital equipment), the intermediate goods of production being excluded. For example, the corn with which one makes the bread, is excluded, but not the bread.

The gross domestic product represents the end result of the production activity of the producing units resident. It is an aggregate of the national accounts, obtained by adding with the sizes measured by categories of Economic agents (Ménage S, undertaken, Public administrations).

In France, it appeared after the Second world war, just like the National accounting, at one moment when the priority was to rebuild and to modernize the country. The GDP is often used as indicator of the economic activity of a country; GDP per capita, as for him, is used as indicator of the standard of living.

Decompositions and calculation of the GDP

The GDP is by definition an accounting value resulting from the Income statement (produced and costs) and not from the Bilan (active/passive). It measures only the flow of production, and not a stock of Capital or Dette S.

The GDP is a measurement of the value of the whole of the goods and services produced on the territory of a country given during a given period (in general, a year, sometimes a quarter), whatever the nationality of the producers (it in what it is distinguished from GNP).

The incomes resulting from the assets outside are not included in the GDP, but they are added to GNP to form the rough National revenue.

The GDP and the growth of the GDP became two of the most important economic indicators. Economic growth and growth of the GDP became synonymous. A reduction in the GDP prolonged over several quarters is a Economic recession.

Decompositions

By the production

The GDP is equal to the sum of the added-values of the economic agents resident, calculated with the market prices, to which one adds the share of the added-value recovered by the State (Taxe on the added-value and Customs duties);

; GDP = Somme of the Added-values Net of tax + Tax on Added-value + Customs duties

By the expenditure

The GDP is equal to the sum of the interior final uses of goods and services, i.e.: the final Consumption effective ( CF ), the Investment (Gross fixed capital formation ( GFCF ) in the statistical jargon), and inventory changes ( VS ). This definition results from the countable equality between the resources of the economy (GDP) and employment which is made of these resources.

In situation of autarky, one a:

Resources = Employment

; GDP = CF + GFCF + VS

In an open economy the imports (noted M ) are added to the resources, exports (noted X ) with employment:

Resources = Employment

GDP + M = CF + GFCF + VS + X

; GDP = CF + GFCF + VS + X - M

As example, in 2004 in the UE-25, 59% of the GDP was devoted to the consumer expenditure final of the households, 21% with the consumer expenditure final of the Public administrations, and 19% with the Investissement.

By the incomes

The GDP is equal to the sum of the gross incomes of the institutional sectors: compensation of employees ( RS ), taxes on the production and the imports minus the subsidies ( T ), rough surplus of exploitation ( EBB ), balance of income with outside ( X-ray ).

; GDP = RS + T + EBB + X-RAY

Commercial GDP and not-merchant

In addition, the GDP counts at the same time the saleable output and the not-commercial production, made up exclusively of services. In France, the GDP not-merchant is almost exclusively the fact of the Public administrations (safety, justice, health, teaching…). By convention, it is evaluated with its production costs (see noncommercial Services).

Calculations of the GDP

Theoretically, there thus exist three methods to calculate the GDP of a country or an area: by the production, by the expenditure and the incomes. For practical reasons, one uses mainly the first method. According to this technique, one adds all the added-values, while basing oneself on the results provided by the Entreprise S, and the Public administrations.

Value and cubic measures

The real GDP or in volume is the value of the GDP by taking account of the variations of the prices, i.e. of the Inflation. Real GDP with the advantage of showing the variations with the rise and the fall in the volume (quantities) of the Production of well S and services. It is the value used when the growth of the GDP is measured.

Indeed, one cannot know only by observing the nominal GDP ( in value ), if the rise of the indicator comes from a rise of the prices, of a rise of the production or in which proportions these two variations combine.

That is to say $P_ {I, T}$ the price of a good $i$ during one period $t$ (for example, one year) and $Q_ {I, T}$ produced quantity of this good $i$ during the period $t$ ; then:

$\ text {GDP} _ {\ text {nominal}, T} = \ sum_i P_ {I, T}. Q_ {I, T} \,$

The real GDP is consisted the value of goods I products during the period T measured at constant prices (noted basic year t₀), that is to say:

$\ text {GDP} _ {\ text {real}, T} = \ sum_i P_ {I, t_0}. Q_ {I, T} \,$

The Déflateur of the GDP is equivalent to the relationship between nominal GDP and real.

GDP per capita

International comparisons

One can compare the GDP of several countries, expressed according to their national currency, according to two methods:

with the current Foreign exchange rate: one uses average foreign exchange rate over the study period.
with Purchasing power parity (PPP): one uses a basket of standard goods, and the convertion rate is the price ratio of this basket between the currencies.

The comparisons in PPP are more reliable when the countries are very different, because of mechanical weakness of the currency S of the poor countries. They also make it possible to be freed from the sometimes sharp variations of the Foreign exchange rate.

One often meets the term of GDP under his English denomination GDP , for Gross Domestic Product .

Limits and defects in the determination of the GDP

the GDP does not take account of the car-production (or subsistence farming), i.e. the richnesses produced and consumed with the center-even of the households: for example the fruits of an orchard which are self-consume, or the Production domesticates (domestic Activités Housewives for example).

the Moonlighting is badly measured, and its added-value is considered and included in the GDP.

the Bénévolat, which is a noncommercial service, is badly measured (the Added-value being entered primarily starting from the costs of personnel, which are by nature unimportant in the voluntary activities)

By definition, it does not take account of the Valeur estimated Actif S and passive (the inheritance) public and deprived; it thus does not measure the positive or negative Externalité S which make evolve/move this value and which thus contribute to a profit or a loss of means. For example, it does not take into account the Natural resources or mines of the country. In the case of a polluting production, followed by a process of depollution, one enters two Production S, for a total result no one.
In the case of a Natural disaster (hurricane, earthquake), the GDP does not enter the destruction of Actif S (houses, roads…) that indirectly, with the height of the impact on the production (thus less than the net loss of the credits). On the other hand, the GDP takes into account the rebuildings which make following the catastrophe (often financed by national assistances or international). To consider this taking into account as a defect is debatable: the capacity to face a natural disaster constitutes well an economic richness, which it thus seems normal to enter (as well as health for example).
a country which invests abroad (Japan) tends to decrease its own GDP to increase that of the debtor country (the United States); conversely an exporting country Net (Japan, still) produced for foreign consumers and increases his own GDP thus.
It is delicate to quantify the real contribution of the noncommercial Services and the public administration to the economic richness, the practice being to simply integrate their costs into the GDP, in the absence of products materialized by invoicings.
the GDP is not an indicator of the Bien-être, Bonheur, or Quality of life. Thus certain consumption makes inflate the GDP whereas obviously they do not reflect an improvement of the happiness of the inhabitants - for example a rise of the purchases of antidepressant drugs.

For all these reasons, accent is more put on evolutions of GDP - i.e. its rise (more commonly called Economic growth) or its fall (Economic recession when the fall is prolonged over several periods), rather than its absolute value. The comparison from one year to another then makes it possible to attenuate the errors since what is forgotten one year (the moonlighting in particular) is also the following year.

Other indicators

Green GDP

Economists thought of measuring a green GDP , for which would be withdrawn conventional GDP the value of the fall of the stock of Natural resources. Such a method of accounting would make it possible to better know if an economic activity increases or cause a drop in the national wealth when it uses natural resources. However, the economists estimate that it would be very difficult to measure such an indicator correctly.

Regional GDP or urban GDP

A measurement of regional GDP, or “Produces urban gross”, is sometimes presented. Its use is criticized because the commercial exchanges (imports and exports) with the other areas of the same country are not measured. Calculation is done then with the productive approach (nap of the values added).

This indicator will reflect whereas the production of the zone, and not the richness, since a residential district where the production is weak will have a very weak local GDP, even if the income of the inhabitants is high.

The attribution of European structural bases, based on the GDP regional, thus sees certain residential areas with weak PIB/habitant but disaster victims (weak unemployment, residents working in an area bordering) to little carry the funds on industrial areas with stronger GDP but with the lower effective richness (important unemployment, precarious employment…).

Human development

The GDP does not have vocation to measure the level of human development of the countries, it measures only the Economic development.

The Index of human development (IDH), inspired of work of Amartya SEN, was created to apprehend the social Bien-être.

GDP and unemployment

A high growth of a country is correlated with a reduction in the Unemployment rate (see Loi of Okun and Courbe from Philips).

GDP and PIB/hab of some countries

GDP in France

GDP

The GDP of the European Union (only one market, a single commercial legislation and almost only one currency, therefore almost a country with the economic direction) was very close into 2004 to that of the the United States. With 27 Member States, the European Union is thus now the first world economic power. The State which posts the most GDP per capita in the world is the Luxembourg, with PIB/hab of 66 500 USD.

See also: List of the countries by GDP (PPA), List of the countries by GDP (nominal)

The data can vary according to ways of calculating (the World Bank, the IMF, OECD, the CIA…).

Data 2004/2005/2006, with Purchasing power parity.

GDP per capita

See also: List of the countries by GDP (PPA) per capita, List of the countries by GDP (nominal) per capita

Some data of 2005, with the GDP per capita:

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