National Income Accounts: Overview and Applications

National National Income Income Accounts: Accounts: Overview Overview and and ApplicationApplicationss

Thorvaldur Gylfason

Y + Z = C + I + G + XY + Z = C + I + G + X Aggregate supply = aggregate Aggregate supply = aggregate

demanddemand Y = C + I + G + X – Z Y = C + I + G + X – Z

(expenditure)(expenditure) where C = Cwhere C = Cdd + C + Czz, I = I, I = Idd + I + Izz, etc., etc.

Y = CY = Cdd + I + Idd + G + Gdd + X + Xdd

Y = C + S + T (allocation)Y = C + S + T (allocation) Y = wages+ interest + rent Y = wages+ interest + rent

(income)(income) Y = coffee + tea + ... (production)Y = coffee + tea + ... (production) Four equivalent definitionsFour equivalent definitions of GNP of GNP

The meaning of GNP

I = S + (T – G) + (Z – X)I = S + (T – G) + (Z – X) = private + public + foreign = private + public + foreign

savingsaving (I – S) + (G – T) = Z – X(I – S) + (G – T) = Z – X

Domestic deficit = foreign deficitDomestic deficit = foreign deficit Example: U.S in 1980sExample: U.S in 1980s

Related conceptsRelated concepts NNPNNP GDPGDP GDIGDI GNIGNI

Saving and investment

NNPNNP = GNP – depreciation= GNP – depreciation GNP = C + IGNP = C + Igg + G + X – Z + G + X – Z NNP = C + INNP = C + Inn + G + X – Z + G + X – Z GNP – NNP = IGNP – NNP = Igg – I – Inn = depreciation = depreciation Recall:Recall: I = I = K + K + KK

GDPGDP = GNP – FI= GNP – FI FI = wages + interest (net) earned FI = wages + interest (net) earned

abroad abroad GNP = GDP + FIGNP = GDP + FI GNP is legal concept, GDP is GNP is legal concept, GDP is

geographicalgeographical Turkey: GNP > GDP; Argentina: GNP < Turkey: GNP > GDP; Argentina: GNP <

GDPGDP

Related concepts

GDIGDI = GNP + transfers= GNP + transfers= GDP + FI + TR= GDP + FI + TR

Related concepts

YY X - ZX - Z DefinitionDefinition

GDPGDP Trade balanceTrade balance Goods and Goods and nonfactor nonfactor servicesservices

GNPGNP Current Current accountaccount

Goods and Goods and servicesservices

GDIGDI Current Current account incl. account incl. transferstransfers

Goods and Goods and services plus services plus transferstransfers

GNIGNI = GNP + terms of trade effect= GNP + terms of trade effect GNP = E + X – ZGNP = E + X – Z

where E = C + I + G and X = Xwhere E = C + I + G and X = XNN/P/PXX

GNI = E + X* - Z GNI = E + X* - Z where X* = Xwhere X* = XNN/P/PZZ

TT = GNI – GNP = X* - X = XTT = GNI – GNP = X* - X = XNN/P/PZZ - - XXNN/P/PXX

= (X= (XNN/P/PXX)(P)(PXX/P/PZ Z -1)-1) PPxx goes up goes up GNI goes up for given GNPGNI goes up for given GNP PPzz goes up goes up GNI goes down for given GNI goes down for given

GNPGNP

Related concepts

Allows us to measure GNPAllows us to measure GNP Domestic usesDomestic uses International comparisonsInternational comparisons Measuring growthMeasuring growth

Why important?

Does not include nonmarket Does not include nonmarket activityactivity Work at homeWork at home

Does not distinguish between Does not distinguish between rising vs. falling incomesrising vs. falling incomes equal vs. unequal distributionequal vs. unequal distribution stocks vs. flowsstocks vs. flows

environmentenvironment resources (natural and human)resources (natural and human)

right vs. wrong exchange ratesright vs. wrong exchange rates work vs. leisurework vs. leisure

Qualifications

NIA: SNIA: S – I = G – T + X – Z – I = G – T + X – Z BOP: BOP: R = X – Z + R = X – Z + DDFF

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

MS: MS: M =M = D + D + R = R = DDGG + + DDPP + + RR

Linkages

NIA: SNIA: S – I = G – T + – I = G – T + X – ZX – Z BOP: BOP: R =R = X – ZX – Z + + DDFF

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

MS: MS: M =M = D + D + R = R = DDGG + + DDPP + + RR

Linkages

NIA: SNIA: S – I = – I = G – TG – T + X – Z+ X – Z BOP: BOP: R = X – Z + R = X – Z + DFDF GFS:GFS: G – TG – T = = B + B + DDGG + + DDFF

MS: MS: M = M = D + D + R = R = DDGG + + DDPP + + RR

Linkages

NIA: SNIA: S – I = G – T + X – Z – I = G – T + X – Z BOP:BOP: RR = X – Z + = X – Z + DDFF

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

MS:MS: M =M = D +D + RR = = DDGG + + DDPP + + RR

Linkages

NIA: SNIA: S – I = G – T + X – Z – I = G – T + X – Z BOP: BOP: R = X – Z +R = X – Z + DDFF

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

MS:MS: M =M = D + D + R = R = DDGG + + DDPP + + RR

Linkages

NIA: SNIA: S – I = G – T + X – Z – I = G – T + X – Z BOP: BOP: R = X – Z + R = X – Z + DDFF

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

MS: MS: M =M = D + D + R =R = DDGG + + DDPP + + RR

Linkages

GFS: G – T = GFS: G – T = B + B + DDGG + + DDFF

NIA: INIA: I – S = – S = DDPP - - M - M - BB G – T + I – S = G – T + I – S = D + D + DDFF - - MM

= = DDFF - - RR

= X – Z= X – Z Therefore, Therefore, R = X – Z + R = X – Z + DDF F

= X – Z + F= X – Z + F

We can use NIA and GFS to derive We can use NIA and GFS to derive BOPBOP

Application

Y = ALY = ALaaKK1-a1-a

where A = E(K/L)where A = E(K/L)aa

Y = EKY = EK Y/Y = Y/Y = A/A + a(A/A + a(L/L) + (1-a)(L/L) + (1-a)(K/K)K/K) Y/Y = q + a(Y/Y = q + a(L/L) + (1-a)(sY/K - L/L) + (1-a)(sY/K - )) g = q + (2/3)0.015 + (1/3)((0.21(1/3) – g = q + (2/3)0.015 + (1/3)((0.21(1/3) –

0.04)0.04) = q + 0.01 + 0.01= q + 0.01 + 0.01

g = 0.03 g = 0.03 q = 0.01q = 0.01 So, US growth can be traced to labor, So, US growth can be traced to labor,

capital, and technology in roughly equal capital, and technology in roughly equal proportionsproportions

Growth accountingRecall:Recall: I = I = K + K + KK

Growth accounting g = sE - g = sE - = 0.06= 0.06 E = 0.30E = 0.30 E = 0.40E = 0.40 E = 0.50E = 0.50

s = 0.10s = 0.10 g = -g = -0.030.03

g = -g = -0.020.02

g = -g = -0.010.01

s = 0.20s = 0.20 g = 0.00g = 0.00 g = 0.02g = 0.02 g = 0.04g = 0.04

s = 0.30s = 0.30 g = 0.03g = 0.03 g = 0.06g = 0.06 g = 0.09g = 0.09

s = 0.40s = 0.40 g = 0.06g = 0.06 g = 0.10g = 0.10 g = 0.14g = 0.14

Country Country AA

Country BCountry B

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%Export ratioExport ratio 58%58% 23%23%

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%Export ratioExport ratio 58%58% 23%23%Primary export Primary export ratioratio

33%33% 80%80%

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%Export ratioExport ratio 58%58% 23%23%Primary export Primary export ratioratio

33%33% 80%80%

InflationInflation 10%10% 18%18%

A Tale of Two Countries

Country Country AA

Country BCountry B

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%Export ratioExport ratio 58%58% 23%23%Primary export Primary export ratioratio

33%33% 80%80%

InflationInflation 10%10% 18%18%Growth per capitaGrowth per capita 3%3% -2%-2%

A Tale of Two Countries

And the countries And the countries are:are: MauritiusMauritius MadagascMadagasc

arar

Girls at primary Girls at primary schoolschool

100%100% 72%72%

Investment ratioInvestment ratio 25%25% 11%11%Export ratioExport ratio 58%58% 23%23%Primary export Primary export ratioratio

33%33% 80%80%

InflationInflation 10%10% 18%18%GrowthGrowth 3%3% -2%-2%

A Tale of Two Countries

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4500

Madagascar

Mauritius

Madagascar and Mauritius:GNP per capita 1964-99

Current US$,Atlas method