Transcript Net National Income

Ecological Economics
Lecture 06
3rd May 2010
Tiago Domingos
Assistant Professor
Environment and Energy Section
Department of Mechanical Engineering
Collaboration: Rui Mota
Growth accounting: Short-run sources of growth
• Break down observed growth in GDP, Y Y  gY into components
associated to changes in factors of production.
Y (t )  F  K (t ), A(t ), L(t ) 
• Output growth only happens due to growth in productive inputs,
including technology.
• Tehcnological progress is measured indirectly, i.e., as growth not
attributed to changes in observable inputs.
• Solow refered to the residual as Total Factor Productivity (TFP)
K (t )
L(t )
gY (t )   YK (t )
  YL (t )
 R(t )
K (t )
L(t )
 YX 
F () X
X Y
R(t )   YA
A
A
Growth accounting: Short-run sources of growth
•Solow model explains more than ½ of output growth.
•An important part of growth is attributed to exogenous
“inputs”. What is technological progress? (the residual)
– Knowledge, institutions (property rights), education, culture, ...
Total Factor Productivity Growth in Portugal
0,14
TFP growth
0,12
GDP growth [€2000]
0,1
0,08
0,06
0,04
0,02
0
1961
1966
1971
-0,02
-0,04
-0,06
Source: AMECO database
1976
1981
1986
1991
1996
2001
2006
National Accounts
• The System of National Accounts is a comprehensive accounting
framework within which economic data can be compiled and presented
in a format that is designed for purposes of economic analysis, decisiontaking and policy-making.
• Integrates a set of macroeconomic accounts, balance sheets and tables
based on a set of internationally agreed concepts, definitions,
classifications and accounting rules.
• Accounts compiled for a succession of time periods, thus providing a
continuing flow of information, indispensable for the monitoring,
analysis and evaluation of the performance of an economy over time.
Aggregation
• 5 Sectors:
– Households
– Firms
– Financial Intermediaries (banks, …)
– Governments (national and local)
– Rest Of the World (ROW)
• 4 Markets (Supply and Demand):
– Goods and services
– Resources (labor, land and capital)
– Money (loanable funds)
– Foreign exchange
Circular flow of income
Households
€
Factor
payments: Y
Factors
€
Expenditures: C
Output
2
1
3
Firms
• Factors: Labor, Land, Capital
• Factor payments: Wage, Rents, Interests, Profits – become income.
• Expenditures: on goods and services (output)
• 1 – Income approach: Y = Wage + Rent + interest + operating surplus
• 2 – Output approach: Y = market value of all produced output (Σ VA)
• 3 – Expenditure approach: Y = C
Circular flow of income
ΔGov
S
FI
Households
C
G
Gov.
Lend
Borrow
Tr
X
T
M
Y
ROW
Firms
I
• Balance to:
– Households: Y - Tnet = C + S, Tnet = T- Tr
– Firms: Y = C + I + G + X - M
– Government: ΔGov = Tnet - G
– FI: S + ΔGov + B - L = I
– ROW: X - M = L - B
- Market for outputs
National Accounts Identity
C
I
X
M
Main Aggregates
National
(Residence)
- Primary income
flows to ROW
Product / Income
+ Primary income flows
from ROW
Domestic
(Territory)
Net
+ Consumption Fixed
Capital (CFC)
Aggregate X
- Consumption of Fixed
Capital (CFC)
Gross
X – Domestic produc, Income, Saving, Disposable income, ...
Domestic Product vs. National Income
• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident
units for production factors.
Domestic Product vs. National Income
• The value added of a firm owned by Portuguese residents and
functioning on our economic territory is part of the Portuguese GDP and
GNI.
• The wage (or other factor payments) of a resident that during 6 months
worked to a firm in Spain is a part of Spanish GDP and Portuguese GNI.
• The operating surplus (profits) – capital remuneration of a firm located in
Portugal but owned by Germans – sent to Germany, is part of the
Portuguese GDP and the German GNI.
• The income earned by Portuguese emigrants working abroad as residents
is not part of the Portuguese GDP and GNI.
Main Aggregates
Subtract CFC
GDP
Net Domestic Product (NDP)
+ Primary income flows from ROW
- Primary income flows to ROW
= Gross National Income (GNI)
= Net National Income (NNI)
+ Current net transfers from ROW
= Gross Disposable Income (GDI)
= Net Disposable Income (NDI)
- Final consumption (Private and Government)
= Gross Saving (S)
= Net Saving (NS)
Domestic Product vs. National Income
Domestic vs National [euros 2000]
180
160
140
Milliards euros
120
100
80
60
PT Domestic
Ireland Domestic
40
PT National
Ireland National
20
0
1960
1965
1970
Source: AMECO database
1975
1980
1985
1990
1995
2000
2005
Gross Product vs. Net Product [euros 2000]
160000
140000
Million euros
120000
100000
GDP
80000
NDP
60000
40000
20000
0
1990
Source: AMECO database
1995
2000
2005
Gross/Net Saving in Portugal [euros 2000]
25000
Gross national saving
Net nation saving
20000
Net Investment
Million euros
15000
10000
5000
0
1960
1965
-5000
-10000
Source: AMECO database
1970
1975
1980
1985
1990
1995
2000
2005