Gross domestic product

In economics, the gross domestic product (GDP) is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period.

Contents

Definition

GDP is defined as the total value of all goods and services produced within that territory during a specified period (most commonly, per year). 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.

Whereas nominal GDP refers to the total amount of money spent on GDP, real GDP refers to an effort to correct this number for the effects of inflation in order to estimate the sum of the actual quantity of goods and services making up GDP. The former is sometimes called "money GDP," while the latter is termed "constant-price" or "inflation-corrected" GDP -- or "GDP in base-year prices" (where the base year is chosen arbitrarily). See real vs. nominal in economics.

A common equation for GDP is:

GDP = consumption + investment + government consumption expenditures + exports - imports

Aggregate expenditures are calculated in a similar way, although the aggregate expenditures formula does not account for unplanned investment (left over inventory at the end of the reporting cycle) and is more commonly used by economic theorists.

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

  • current exchange rate: GDP calculated by exchange rates prevailing on international currency markets
  • purchasing power parity exchange rate: GDP calculated by purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).

The relative ranking of countries may differ dramatically between the two approaches.

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.

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 power.

For more information see measures of national income.

Problems

Although GDP is widely used by economists, its value as an indicator has also been the subject of controversy. Criticisms of GDP include:

  • Very often different calculations of the GDP are confused among each other. One should especially regard whether it is calculated by purchasing power parity method or current exchange rate method.
  • GDP, as a measure of economic size, fails to measure well-being and standard of living accurately.
  • GDP doesn't take into account the black economy, non-monetary economy such as bartering, volunteer work, or informal creation of wealth, such as unpaid childcare provided by non-working parents, or production of goods taking place at home. Hence, in countries with major business transactions occurring informally, portions of local economy are not easily registered, resulting in inaccurate or abnormally low GDP figures.
  • GDP doesn't measure the sustainability of growth, as a country may achieve a temporary high GDP by over-exploiting natural resources.
  • GDP counts work that produces no net gain, and does not account for negative externalities. For example, if a factory pollutes a river, that boosts GDP, and when the taxpayers pay to have it cleaned up, that boosts GDP again. See parable of the broken window.
  • GDP also does not tell us the actual distribution of the wealth of a country. Certain groups of people within a country might not be benefiting from its economic wealth. A high GDP could be the result of a case of a few very wealthy people contributing to the economy, while most of its citizens live at or below the subsistence level.

In spite of the problems with GDP as an economic measurement, concrete proposals for a replacement metric have been difficult to generate. A proposed substitute known as the Genuine Progress Indicator (GPI) has been promoted by the Green Party of Canada. How exactly to determine GPI is uncertain, however; one possible formula was devised by Redefining Progress, a San Francisco policy research group.

List of total GDP by country (Purchasing Power Parity Method)

Rank Entity PPP total PPP/capita Population
(U.S dollars) (U.S dollars) (2003 est.)
1. United States 10.40 trillion (1012) 37,600 290,343,000
2. Eurozone1 7.87 trillion 25,300 311,004,756
3. Mainland China 5.70 trillion 4,400 1,287,000,000
4. Japan 3.55 trillion 28,000 127,215,000
5. India 2.66 trillion 2,540 1,049,701,000
6. United Kingdom 1.52 trillion 25,300 60,095,000
7. Russia 1.35 trillion 9,300 144,526,000
8. Brazil 1.34 trillion 7,600 182,032,000
9. South Korea 931 billion (109) 19,400 48,249,000
10. Canada 923 billion 29,400 32,207,000
11. Mexico 900 billion 9,000 104,908,000
12. Indonesia 663 billion 3,100 234,894,000
13. Australia 528 billion 27,000 19,732,000
14. Turkey 468 billion 7,000 68,110,000
15. Iran 456 billion 7,000 68,279,000
16. South Africa 432 billion 10,000 42,769,000
17. Thailand 429 billion 6,900 70,000,000
18. Taiwan 406 billion 18,000 22,116,000
19. Argentina 391 billion 10,200 38,000,000
20. Poland 368 billion 9,500 38,000,000


1 Although the Eurozone is not formally a nation, it is tied together with a single currency and is considered by some to be a single entity; its trade behaves as such. However, this figure is not necessarily accurate, as it is merely a sum of the GDPs of the Eurozone nations, not a result based on econometric models taking into account differences in transanational exchange rates.

The methodology for deriving accurate PPP comparisons remains under constant review, and questions have been raised as to whether the relative size of Mainland China's GDP may be overstated to some extent.

For further data, see List of countries by GDP (PPP)

List of total GDP by country (Current Exchange Rate Method)

Total GDP 2003 (millions of Ranking Economy US dollars). The ranking is different to the list above, which uses PPP method

(If changing numbers, please use the same source for all countries)

  1. USD 10,881,609 -- United States
  2. USD 4,326,444 -- Japan
  3. USD 2,400,655 -- Germany
  4. USD 1,794,858 -- United Kingdom
  5. USD 1,747,973 -- France
  6. USD 1,465,895 -- Italy
  7. USD 1,409,852 -- Mainland China
  8. USD 836,100 -- Spain
  9. USD 834,390 -- Canada
  10. USD 626,080 -- Mexico
  11. USD 605,331 -- South Korea
  12. USD 598,966 -- India
  13. USD 518,382 -- Australia
  14. USD 511,556 -- Netherlands
  15. USD 492,338 -- Brazil
  16. USD 433,491 -- Russian Federation
  17. USD 309,465 -- Switzerland
  18. USD 302,217 -- Belgium
  19. USD 300,795 -- Sweden
  20. USD 251,456 -- Austria
  21. USD 237,972 -- Turkey
  22. USD 221,579 -- Norway
  23. USD 212,404 -- Denmark
  24. USD 209,563 -- Poland
  25. USD 208,311 -- Indonesia

Source: Worldbank (http://www.worldbank.org/data/databytopic/GDP.pdf)

For further data, see list of countries by GDP.

See also



External links

af:Bruto nasionale produk da:BNI per indbygger de:Bruttoinlandsprodukt et:SKT es:Producto Nacional Bruto eo:Malneta Enlanda Produkto fr:Produit intérieur brut lt:Bendras Vidaus Produktas nl:Bruto Nationaal Product no:BNP ja:国内総生産 pl:Produkt krajowy brutto ro:Produs intern brut simple:Gross Domestic Product sv:Bruttonationalprodukt zh-cn:国内生产总值


This article is licensed under the GNU Free Documentation License. It uses material from Wikipedia article. Browse Wikipedia for more information.