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55-430: GVA is an important measure used to determine gross domestic product (GDP). GDP is an indicator of the health of a national economy and economic growth. It represents the monetary value of all products and services produced in the country within a defined period of time. "In comparing GVA and GDP, we can say that GVA is a better measure for the economic welfare of the population, because it includes all primary incomes. From

110-509: A base year. The result would be that the GDP in 2000 equals $ 300 million × 1 ⁄ 2 = $ 150 million , in 1990 monetary terms. We would see that the country's GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real GDP . The factor used to convert GDP from current to constant values in this way

165-518: A country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets. Gross national income (GNI) equals GDP plus income receipts from

220-521: A country's borders, but by an enterprise owned by somebody outside the country, counts as part of its GDP but not its GNI; on the other hand, production by an enterprise located outside the country, but owned by one of its citizens, counts as part of its GNI but not its GDP. For example, the GNI of the US is the value of output produced by American-owned firms, regardless of where the firms are located. Similarly, if

275-650: A country's citizens at home and abroad rather than its "resident institutional units" (see OECD definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions . The history of

330-576: A country's development status. They conclude that 11%, 21% and 34% of all countries can be interpreted as currently misclassified in the development bins due to the three sources of data error, respectively. Wolff, Chong and Auffhammer suggest that the United Nations should discontinue the practice of classifying countries into development bins because the cut-off values seem arbitrary, and the classifications can provide incentives for strategic behavior in reporting official statistics, as well as having

385-406: A country's production has increased (or decreased, if the growth rate is negative) compared to the previous year, typically expressed as percentage change . The economic growth can be expressed as real GDP growth rate or real GDP per capita growth rate . GDP can be adjusted for population growth, also called Per-capita GDP or GDP per person . This measures the average production of a person in

440-530: A number of grounds, including focusing exclusively on national performance and ranking, lack of attention to development from a global perspective, measurement error of the underlying statistics, and on the UNDP's changes in formula which can lead to severe misclassification of "low", "medium", "high" or "very high" human development countries. There have also been various criticism towards the lack of consideration regarding sustainability (which later got addressed by

495-467: Is US$ 5,040,107.75 (in a million). Predictably, as a developed country, Japan has a higher GNI (by 182,779.46, in millions of USD), which is indicative that the production level in the country is higher than that of national production. On the other hand, the case with Armenia is the opposite, with GDP being lower than GNI by US$ 196.12 (in million). This demonstrates that countries receive investments and foreign aid from abroad. The Total income divided by

550-540: Is a monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic health of a country or region. Several national and international economic organizations maintain definitions of GDP, such as the OECD and the International Monetary Fund . The ratio of GDP to

605-435: Is a statistical composite index of life expectancy , education (mean years of schooling completed and expected years of schooling upon entering the education system ), and per capita income indicators, which is used to rank countries into four tiers of human development . A country scores a higher level of HDI when the lifespan is higher, the education level is higher, and the gross national income GNI (PPP) per capita

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660-425: Is also sometimes expressed as: The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices. Market goods that are produced are purchased by someone. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring

715-435: Is available for almost every country in the world, allowing inter-country comparisons. It is measured consistently in that the technical definition of GDP is relatively consistent among countries. GDP does not include several factors that influence the standard of living. In particular, it fails to account for: Human Development Index This is an accepted version of this page The Human Development Index ( HDI )

770-838: Is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire – wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US "National Income and Product Accounts" divide incomes into five categories: These five income components sum to net domestic income at factor cost. Two adjustments must be made to get GDP: Total income can be subdivided according to various schemes, leading to various formulae for GDP measured by

825-474: Is called the GDP deflator . Unlike consumer price index , which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods. Real GDP can be used to calculate the GDP growth rate, which indicates how much

880-412: Is considered central — someone choosing to be hungry (e.g. when fasting for religious reasons ) is considered different from someone who is hungry because they cannot afford to buy food, or because the country is going through a famine . The index does not take into account several factors, such as the net wealth per capita or the relative quality of goods in a country. This situation tends to lower

935-423: Is contributed at each stage of production. This approach mirrors the OECD (Organisation for Economic Co-operation and Development) definition given above. Gross value added = gross value of output – value of intermediate consumption. Value of output = value of the total sales of goods and services plus the value of changes in the inventory. The sum of the gross value added in the various economic activities

990-608: Is higher. It was developed by Pakistani economist Mahbub ul-Haq and was further used to measure a country's development by the United Nations Development Programme (UNDP)'s Human Development Report Office. The 2010 Human Development Report introduced an inequality-adjusted Human Development Index (IHDI). While the simple HDI remains useful, it stated that "the IHDI is the actual level of human development (accounting for this inequality ), while

1045-404: Is known as "GDP at factor cost". GDP at factor cost plus indirect taxes less subsidies on products = "GDP at producer price". For measuring the output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods: The value of output of all sectors

1100-587: Is that GDP defines its scope according to location, while GNI defines its scope according to ownership. In a global context, world GDP and world GNI are, therefore, equivalent terms. GDP is a product produced within a country's borders; GNI is product produced by enterprises owned by a country's citizens. The two would be the same if all of the productive enterprises in a country were owned by its own citizens and those citizens did not own productive enterprises in any other countries. In practice, however, foreign ownership makes GDP and GNI non-identical. Production within

1155-451: Is the grand total of all revenues, from final sales and (net) subsidies, which are incomes into businesses. Those incomes are then used to cover expenses (wages & salaries, dividends), savings (profits, depreciation), and (indirect) taxes. GVA is sector specific, and GDP is calculated by summation of GVA of all sectors of economy with taxes added and subsidies are deducted. Gross domestic product Gross domestic product ( GDP )

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1210-666: Is the year when the report was published. The HDI has extended its geographical coverage: David Hastings, of the United Nations Economic and Social Commission for Asia and the Pacific , published a report geographically extending the HDI to 230+ economies, whereas the UNDP HDI for 2009 enumerates 182 economies and coverage for the 2010 HDI dropped to 169 countries. The Human Development Index has been criticized on

1265-453: Is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost. Adding indirect tax minus subsidies to GVA (GDP) at factor cost gives the "GVA (GDP) at producer prices". The second way of estimating GDP is to use "the sum of primary incomes distributed by resident producer units". If GDP

1320-517: Is used for measuring gross regional domestic product and other measures of the output of entities smaller than a whole economy. Restated, GVA can be used for measuring of the contribution to GDP made by an individual producer, industry or sector. For instance, to analyze the productivity of the market sector, one can use GVA per worker or GVA per hour. The measure preferred by the Organisation for Economic Cooperation and Development ( OECD ) in

1375-617: The Human Development Index or Better Life Index , as better approaches to measuring the effect of the economy on human development and well being . William Petty came up with a concept of GDP, to calculate the tax burden , and argue landlords were unfairly taxed during warfare between the Dutch and the English between 1652 and 1674. Charles Davenant developed the method further in 1695. The modern concept of GDP

1430-481: The lowest and highest values the variable x {\displaystyle x} can attain, respectively. The Human Development Index (HDI) then represents the uniformly weighted sum with 1 ⁄ 3 contributed by each of the following factor indices: The Human Development Report 2023/24 by the United Nations Development Programme was released on 13 March 2024; the report calculates HDI values based on data collected in 2022. Ranked from 1 to 69 in

1485-488: The planetary pressures-adjusted HDI ), social inequality (which got addressed by the inequality-adjusted HDI ), unemployment or democracy . Economists Hendrik Wolff, Howard Chong and Maximilian Auffhammer discuss the HDI from the perspective of data error in the underlying health, education and income statistics used to construct the HDI. They have identified three sources of data error which are: (i) data updating, (ii) formula revisions and (iii) thresholds to classify

1540-1222: The 2010 Human Development Report calculated the HDI combining three dimensions: In its 2010 Human Development Report, the UNDP began using a new method of calculating the HDI. The following three indices are used: 1. Life Expectancy Index (LEI) = LE − 20 85 − 20 = LE − 20 65 {\displaystyle ={\frac {{\textrm {LE}}-20}{85-20}}={\frac {{\textrm {LE}}-20}{65}}} 2. Education Index (EI) = MYSI + EYSI 2 {\displaystyle ={\frac {{\textrm {MYSI}}+{\textrm {EYSI}}}{2}}} 3. Income Index (II) = ln ⁡ ( GNIpc ) − ln ⁡ ( 100 ) ln ⁡ ( 75 , 000 ) − ln ⁡ ( 100 ) = ln ⁡ ( GNIpc ) − ln ⁡ ( 100 ) ln ⁡ ( 750 ) {\displaystyle ={\frac {\ln({\textrm {GNIpc}})-\ln(100)}{\ln(75,000)-\ln(100)}}={\frac {\ln({\textrm {GNIpc}})-\ln(100)}{\ln(750)}}} Finally,

1595-591: The HDI can be viewed as an index of 'potential' human development (or the maximum level of HDI) that could be achieved if there was no inequality." The index is based on the human development approach, developed by Mahbub ul-Haq, anchored in Amartya Sen 's work on human capabilities, and often framed in terms of whether people are able to "be" and "do" desirable things in life. Examples include — being: well-fed, sheltered, and healthy; doing: work, education, voting, participating in community life. The freedom of choice

1650-522: The HDI is the geometric mean of the previous three normalized indices: LE: Life expectancy at birth MYS: Mean years of schooling (i.e. years that a person aged 25 or older has spent in formal education) EYS: Expected years of schooling (i.e. total expected years of schooling for children under 18 years of age, incl. young men and women aged 13–17) GNIpc: Gross national income at purchasing power parity per capita The HDI combined three dimensions last used in its 2009 report: This methodology

1705-514: The Productivity Database is GVA per hour. At the company level, GVA refers to the net income of a produced particular good. "Once the consumption of fixed capital and the effects of depreciation are subtracted, the company knows how much net value a particular operation adds to its bottom line. In other words, the GVA number reveals the contribution made by that particular product to the company's profit." Over-simplistically, GVA

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1760-499: The Wolff et al. paper. The Human Development Report Office states that they undertook a systematic revision of the methods used for the calculation of the HDI, and that the new methodology directly addresses the critique by Wolff et al. in that it generates a system for continuously updating the human-development categories whenever formula or data revisions take place. In 2013, Salvatore Monni and Alessandro Spaventa emphasized that in

1815-427: The accounting year. ) So for example if a car manufacturer buys auto parts , assembles the car and sells it, only the final car sold is counted towards the GDP. Meanwhile, if a person buys replacement auto parts to install them on their car, those are counted towards the GDP. According to the U.S. Bureau of Economic Analysis, which is responsible for calculating the national accounts in the United States, "In general,

1870-540: The concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector , by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In

1925-401: The country. GDP per capita is often used as an indicator of living standards. The major advantage of GDP per capita as an indicator of the standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP every quarter, allowing trends to be seen quickly. It is measured widely in that some measure of GDP

1980-416: The focus of development economics from national income accounting to people-centered policies ". He believed that a simple composite measure of human development was needed to convince the public, academics and politicians that they can, and should, evaluate development not only by economic advances but also improvements in human well-being . Published on 4 November 2010 (and updated on 10 June 2011),

2035-553: The income approach. A common one is: The sum of COE , GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It 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(I) at factor cost to GDP(I) at final prices. Total factor income

2090-443: The information required (especially information on expenditure and production by governments). The raw GDP figure as given by the equations above is called the nominal, historical, or current GDP. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money—for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by

2145-684: The international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy. GDP is often used as a metric for international comparisons as well as a broad measure of economic progress . It is often considered to be the world's most powerful statistical indicator of national development and progress. However, critics of the growth imperative often argue that GDP measures were never intended to measure progress, and leave out key other externalities , such as resource extraction , environmental impact and unpaid domestic work . Alternative economic indicators such as doughnut economics use other measures, such as

2200-479: The point of view of the society as a whole GDP, despite its disadvantages, is probably a better measure for economic growth and welfare, because it includes also NET INDIRECT TAX (indirect taxes minus subsidies) which are the financial basis for the collective consumption of the society." The relationship between GVA and GDP is defined as: As the total aggregates of taxes on products and subsidies on products are only available at whole economy level, Gross value added

2255-463: The population is the Per capita income . The international standard for measuring GDP is contained in the book System of National Accounts (2008), which was prepared by representatives of the International Monetary Fund , European Union , Organisation for Economic Co-operation and Development , United Nations and World Bank . The publication is normally referred to as SNA2008 to distinguish it from

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2310-523: The potential to misguide politicians, investors, charity donors and the public who use the HDI at large. In 2010, the UNDP reacted to the criticism by updating the thresholds to classify nations as low, medium, and high human development countries. In a comment to The Economist in early January 2011, the Human Development Report Office responded to an article published in the magazine on 6 January 2011 which discusses

2365-430: The previous edition published in 1993 (SNA93) or 1968 (called SNA68) SNA2008 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. Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to

2420-512: The products must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers", colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes. Also known as the Value Added Approach, it calculates how much value

2475-450: The ranking of some of the most developed countries , such as the G7 members and others. The origins of the HDI are found in the annual Human Development Reports produced by the Human Development Report Office of the United Nations Development Programme (UNDP). These annual reports were devised and launched by Pakistani economist Mahbub ul-Haq in 1990, and had the explicit purpose "to shift

2530-445: The ratio between the value of money in the year the GDP was measured and the value of money in a base year. For example, suppose a country's GDP in 1990 was $ 100 million and its GDP in 2000 was $ 300 million . Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as

2585-587: The rest of the world minus income payments to the rest of the world. In 1991, the United States switched from using GNP to using GDP as its primary measure of production. The relationship between United States GDP and GNP is shown in table 1.7.5 of the National Income and Product Accounts . Another example that amplifies the difference between GDP and GNI is the comparison of developed and developing country indicators. The GDP of Japan for 2020

2640-408: The same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy. The most direct of the three is the production approach, which sums up the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of

2695-401: The source data for the expenditures components are considered more reliable than those for the income components [see income method, above]." Encyclopedia Britannica records an alternate way of measuring exports minus imports: notating it as the single variable NX. GDP can be contrasted with gross national product (GNP) or, as it is now known, gross national income (GNI). The difference

2750-536: The total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. GDP (Y) is the sum of consumption (C) , investment (I) , government expenditures (G) and net exports (X − M) . Here is a description of each GDP component: C , I , and G are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and services are those used by businesses to produce other goods and services within

2805-439: The total population of the region is the GDP per capita and can approximate a concept of a standard of living . Nominal GDP does not reflect differences in the cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on

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2860-473: The words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." China officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system. GDP can be determined in three ways, all of which should, theoretically, give

2915-503: The year 2022, the following countries are considered to be of "very high human development": The list below displays the top-ranked country from each year of the Human Development Index. Norway has been ranked the highest sixteen times, Canada eight times, and Switzerland, Japan, and Iceland have each ranked twice. The year represents the time period from which the statistics for the index were derived. In parentheses

2970-493: Was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms ). After the Bretton Woods Conference in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by

3025-570: Was used by the UNDP until their 2011 report. The formula defining the HDI is promulgated by the United Nations Development Programme ( UNDP ). In general, to transform a raw variable , say x {\displaystyle x} , into a unit-free index between 0 and 1 (which allows different indices to be added together), the following formula is used: where a {\displaystyle a} and b {\displaystyle b} are

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