Transcript The Three Faces of GDP - Uniwersytet Warszawski

Three national accounting "systems":
•System of National Accounts 2008
(SNA revisions: 1953, 1968, 1993, 2008)
•European System of Accounts 1995
(ESA 95  SNA 93; ESA 70  SNA 68 );
•NIPA 2009 (National Income & Product
Accounts, US)
re: OECD, Understanding National Accounts 2006
http://masetto.sourceoecd.org/vl=1134443/cl=17/nw=1/rpsv/una/
The reference manuals
•
The standards governing national accounts are enshrined in two international reference
manuals: the System of National Accounts 1993 (SNA 93), which is recognised globally,
and the European version of this called the European System of Accounts 1995 (ESA
95). At the end of 2009 a long awaited new revision of the SNA was published.
•
The new manual (2008 SNA) is co-signed by the five major international economic
organizations: the United Nations, the International Monetary Fund, the OECD, the
World Bank and the European Commission.
•
The European manual is totally compatible with the global manual and includes
additional useful details. It also has a more legally binding character because, according
to European regulations, EU member countries are obligated to implement it.
•
These manuals have contributed substantially to improving the international
comparability of data, although further progress still has to be made in this endeavor .
•
The complete 1993 SNA version is available online:
http://unstats.un.org/unsd/sna1993/toctop.asp.
•
•
The new version is also available online:
http://unstats.un.org/unsd/nationalaccount/SNA2008.pdf
Two basic aggregates: GDP & GNI
• GDP  Gross Domestic Product
• GDP =  outputs - (intermediate consumptions)
• GDP =  (gross values added)
plus taxes on products
minus subsidies on products
* * *
• GNI  Gross National Income
• GNI = GDP
+ primary income (including earnings) received from the rest of the world
– primary income (including earnings) paid to the rest of the world
GDP vs. other aggregates
•
Why the bizarre title gross domestic product, or GDP? Domestic indicates that the
output measured is produced within the economic territory of the country, or the
group of countries, concerned. (It is in fact entirely possible to calculate GDP for a
group of countries, such as that of the euro area.) Gross means the consumption of
fixed capital is not deducted .
•
Domestic is also in opposition to national, as in GNI or gross national income,
which is the current title of what was referred to as GNP, or gross national
product, in previous systems of national accounts (GNP is still widely used out of
habit). GDP measures the total production occurring within the territory, while GNI
measures the total income (excluding capital gains and losses) of all economic
agents residing within the territory (households, firms and government
institutions).
•
For large countries like Germany, the difference between GDP and GNI is small (0.4%, as seen
in the following table). But it is larger for a small country like Luxembourg, which pays out a
substantial percentage of its GDP as workers' earnings and other so-called primary income to
the rest of the world. Primary income includes interest paid on money invested in
Luxembourg. Luxembourg also receives substantial primary income from abroad, including
interest. In the final analysis, the difference between GDP and GNI is around -11.5% for
Luxembourg. Ireland is in a comparable situation to Luxembourg, since it pays out substantial
dividends to the parent companies of the American multinational firms that have set up
there, partly, but not entirely, for tax reasons. The result is that Ireland's GNI is 16.2% lower
than its GDP. While for these three countries GNI is lower than GDP, the opposite also
happens - Switzerland is a case in point.
GNI vs GDP (in millions of Euro)
Year 2003
Germany
Luxembourg
Ireland
Gross Domestic
Product
2 128 200
23 956
134 786
+ primary income
(including earnings)
received from the
rest of the world
+104 610
+52 972
+30 296
– primary income
(including earnings)
paid to the rest of
the world
–118 630
–55 722
–52 139
= Gross National
Income
2 114 180
21 206
112 943
–0.7
–11.5
–16.2
Difference between
GDP and GNI (%)
The Three Faces of GDP
Figure 5.2
5 Measures of National Income
2001 U.S. Income Measures
Net income of foreigners
Net exports
(in billions of $)
Depreciation
Indirect
(business) taxes
Personal
consumer
expenditures
Employee
compensation
Gross private
domestic
investment
Proprietors’
income
Interest
Rents
Corporate profits
Government
consumption
and investment
GDP
$10,208
GNI
$10,203
– Minus –
Indirect
(business)
taxes,
Corporate
profit taxes,
corporate
profits and
social
insurance
taxes
Personal
income taxes
– Plus –
Transfer
payments,
net interest,
and
dividends
(Net) National Income
([(NI] $8,218
Personal income Disposable income
(PI) $8,724
(DPI) $7,417
• Above are 5 alternative measures of national income.
• These range from GDP (broadest) to Disposable Income
• Plus: GNI  GNP; NDP  NNP; Domestic Income; DPI=C+S+[%oCL]
Two types of comparisons:
in space & in time
• Spacial comparisons:
typically between countries (also: regional, etc.)
– here problems of purchasing power differences
between countries (regions) and of exchange rates
• Time comparisons:
time series (short and long)
– here problems of purchasing power changing over
time ("price inflation and disinflation")
On the basis of: http://go.worldbank.org/B5PYF93QF0 downloaded on March 1, 2009
The Quick Reference tables available here show the most recent World Bank estimates of
total population, gross domestic product (GDP), and gross national income (GNI). The
tables include a ranking of countries both by total size and in per capita terms.
Measuring the size of economies
There are many ways to measure the size and performance of an economy. The relative
size of economies, reflected in the rankings provided here—and changes in rankings from
one year to the next—depend on the specific indicator and the method used to covert
local currencies to U.S. dollars.
1. World Bank Atlas method
2. Purchasing power parities
3. Market exchange rates
4. Why do rankings change?
5. Ranking tables (revised estimates for 2007 posted September 2008 & October 2008):
a.
b.
c.
d.
e.
GNI per capita, Atlas method and PPP
GNI, Atlas method
GDP
GDP, PPP
Population
1. World Bank Atlas method
The World Bank’s official estimates of the size of economies are
based on GNI converted to current U.S. dollars using the Atlas
method.
GNI takes into account all production in the domestic economy
(i.e., GDP) plus the net flows of factor income (such as rents,
profits, and labor income) from abroad.
The Atlas method smoothes exchange rate fluctuations by using a
three year moving average, price-adjusted conversion factor.
2. Purchasing power parities
Purchasing power parity (PPP) conversion factors take into
account differences in the relative prices of goods and services—
particularly non-tradeables—and therefore provide a better
overall measure of the real value of output produced by an
economy compared to other economies.
PPP GNI is measured in current international dollars which, in
principal, have the same purchasing power as a dollar spent on
GNI in the U.S. economy. Because PPPs provide a better measure
of the standard of living of residents of an economy, they are the
basis for the World Bank’s calculations of poverty rates at $1 and
$2 a day.
The GNI of developing countries measured in PPP terms generally
exceeds their GNI measured using the Atlas method or using
3. Market exchange rates
The total GDP data shown here measured in current U.S. dollars
use annual, market exchange rates.
This means that the values and derived rankings are subject to
greater volatility due to variations in exchange rates.
Inter-country comparisons based on GDP at market prices
should, therefore, be treated with caution.
4. Why do rankings change?
Year to year changes in the nominal level of output or income of
an economy are affected by a combination of forces: real growth,
price inflation, and exchange rates. Changes in any of the three
can affect an economy’s relative size and, therefore, its ranking in
comparison to other economies.
•The economic series shown are measured in nominal terms, and so
their level from year to year is affected by changes in the general price
level.
•The Atlas method dampens variability caused by fluctuations in
exchange rates,
•while the PPP method eliminates the effects of differences and
changes in relative price levels.
•Nominal GDP, perhaps the most familiar measure of aggregate
economic activity, is most subject to price and exchange rate effects.
5. Ranking tables
(revised estimates for a given year are posted in September & October
of the next year):
•GNI per capita, Atlas method and PPP
•GNI, Atlas method
•GDP
•GDP, PPP
•Population
Regional tables from the 20?? World Development Indicators:
Key indicators: regional comparisons for People, Environment, Economy, States and Markets, and
Global Links.
Country comparisons: East Asia & Pacific, Europe & Central Asia, Latin America & Caribbean,
Middle East & North Africa, South Asia, Sub-Saharan Africa
Technical notes
Country classification
Definitions More technical descriptions of the indicators discussed above are as follows:
Gross national income (GNI) in US$ Atlas method:
GNI is the sum of value added by all resident producers plus any product
taxes (less subsidies) not included in the valuation of output plus net
receipts of primary income (compensation of employees and property
income) from abroad.
Data are in current U.S. dollars, converted from countries’ respective
national currencies using the Atlas method, which uses a three-year
average of exchange rates to smooth effects of transitory exchange rate
fluctuations. (GDP & GDP per capita growth rates, however, are
calculated from data in constant prices and national currency units, not
from the Atlas method estimates).
The World Bank favors the Atlas method for comparing the relative size
of economies and uses it to classify countries in low, middle and highincome categories and to set lending eligibilities in order to reduce
short-term fluctuations in country classification.
Purchasing power parity
gross national income (PPP GNI):
This measure is GNI converted to international dollars using purchasing power
parity. An international dollar has the same purchasing power over GNI as a U.S.
dollar has in the United States.
The World Bank favors this measure for accurate measurement of poverty and
well-being; in effect, it substitutes global prices for local measured prices,
thereby more accurately reflecting the real value of the good or service in
question.
This is especially true of non-tradable services (haircuts are the example) which
are assumed to produce the same level of welfare from one country to another,
but which vary widely in their measured local price.
Gross domestic product (GDP) in current prices:
GDP is sum of gross value added, at purchaser prices converted at
market exchange rates to current U.S. dollars, by all resident producers
in the economy plus any product taxes (less subsidies) not included in
the valuation of output. It is calculated without deducting for
depreciation of fabricated capital assets or for depletion and
degradation of natural resources. GDP is equal to GNI less net receipts
of primary income. Value added is the net output of an industry after
adding up all outputs and subtracting intermediate inputs.
The World Bank does not use this measure for classification of
countries into income groups or poverty levels, as it is subject to
distortions caused by short-term exchange rate fluctuations, policies
and interventions. However, GDP measured in constant, local currency
units provides the basis for estimates of overall economic growth.
For more information please see the notes and definitions included in the World Development Indicators 20??.
Nominal vs Real GDP (etc.)
• Economists and journalists have acquired the
unfortunate habit of using the general term
growth instead of specifying growth in real GDP.
• A typical sentence is: "growth is 2%" instead of
"growth in real GDP is 2%". This lack of precision
sometimes results in bizarre terminology, such as
negative growth, which is an oxymoron; it would
be better to say a decrease of GDP in volume.
• Incidentally, national accountants prefer the term
GDP in volume to real GDP because inflation is
just as real as growth.
Gross domestic product, in value and in
volume, Germany, in millions of Euro
Source: OECD (2006), National Accounts of OECD Countries: Volume I, Main
Aggregates, 1993-2004, 2006 Edition, OECD, Paris.
StatLink http://dx.doi.org/10.1787/142154615437
Output of the U.S. Economy,
1900-2004
Figure 4.1
Volume vs value terms
• The subject of measuring economic variables
(and SNA/ESA/NIPA categories in particular) in
terms of their changing volume rather than
value (real vs. nominal) will be allaborated in
the next presentation.
• It'll deal with calculating SNA categories in
constant prices, construction of deflators such
as Laspeyres, Paasche and Fisher aggregate
indexes, as well as chain-linked series of them.