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Analysis of GDP Statistics
Eiichi Araki
The most important economic indicator
By inspecting GDP statistics, we can appreciate various aspects of the world economy.
• Economic power of each country ( size of GDP )
• Material prosperity of each nation ( GDP per capita )
• Business conditions in each economy ( economic growth rate )
• Characteristics of each economy ( Decomposition analysis )
Today’s contents– An overview of relevant terms
• Value-added, Nominal/Real GDP,GDP deflator, Economic growth rate
– GDP ranking• International comparison• PPP ( Purchasing Power Parity )
– GDP per capita and economic growth• Correlation • Convergence theory
What is GDP?GDP ( Gross Domestic Product ) is ...
• the total amount of “value-added”
• produced by all the companies located in a country
• for a certain period ( 1 year / 1 quarter ).
n.b. value-added : noun[uncountable]
What is “value added”?
The total amount of value-added (GDP) is v1+v2+v3.
value-added = sales of product – expense for intermediate input
sales = total revenue of the producer = price of product × quantity sold
The value-added of the farmerv1 = (the sales of the wheat) – (the expense for the seeds)
Similarly, V2 is the value-added of the mill.V3 is the value-added of the factory.
Calculation of GDP
As easily seen,
without the loss of generality,
total amount of the value-added
= v1 + v2 + v3
= (the sales of bread) – importsTherefore, ...
GDP = (the total sales of final goods in a country) - (the total costs of imports in a country)
Note!
intermediate goods :seeds, wheat, flour
final goods : bread
Nominal and Real GDPNominal GDP is evaluated by current pricesReal GDP is evaluated by prices in a base year
Note! Changes of nominal GDP reflect changes in both quantities and prices, Changes of real GDP reflect only changes in quantities.
frequently used as a price index, along with CPI (Consumer price index) or WPI (Wholesale price index).
GDP deflator =Nominal GDP
Real GDP
Numerical examples2001 20022000
GDP ranking in 2006 (IMF)
List of countries by GDP (nominal) - Wikipedia, the free encyclopedia file:///Users/eiichi/Library/Application%20Support/Firefox/Profiles/sjgd3yt5.def...
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List of countries by GDP (nominal)From Wikipedia, the free encyclopedia
This article includes a list of countries of the world
sorted by their gross domestic product (GDP), the
value of all final goods and services produced within a
nation in a given year. The GDP dollar estimates
presented here are calculated at market or government
official exchange rates.
The first list below includes data for the year 2006 for all
181 members of the International Monetary Fund, for
which information is available. Data are in millions of
current United States dollars.
These figures do not include Somalia, Cuba, North Korea, Iraq, several small states in Europe (Andorra,
Monaco, San Marino, Liechtenstein, Vatican City) and the Pacific (Palau, Marshall Islands, Micronesia, Nauru
and Tuvalu) or dependencies (Greenland).
The second list is World Bank estimates for 2006.
2006 List by the International Monetary Fund 2006 List by the World Bank
Rank CountryGDP (millions of
USD)
— Gross world product 48,144,466
— European Union 14,527,140
1 United States 13,244,550
2 Japan 4,367,459
3 Germany 2,897,032
4 People's Republic of
China2,630,113 2
5 United Kingdom 2,373,685
6 France 2,231,631
7 Italy 1,852,585
8 Canada 1,269,096
9 Spain 1,225,750
10 Brazil 1,067,706
11 Russia 979,048
12 South Korea 888,267
13 India 886,867
14 Mexico 840,012
15 Australia 754,816 1
16 Netherlands 663,119
17 Belgium 393,590 1
18 Turkey 392,424
19 Sweden 385,293 1
20 Switzerland 377,240
Rank CountryGDP (millions of
USD)
— Gross world product 48,244,879
— European Union N/A
1 United States 13,201,819
2 Japan 4,340,133
3 Germany 2,906,681
4 China 2,668,071
5 United Kingdom 2,345,015
6 France 2,230,721a
7 Italy 1,844,749
8 Canada 1,251,463
9 Spain 1,223,988
10 Brazil 1,067,962
11 Russian Federation 986,940
12 India 906,268
13 South Korea 888,024
14 Mexico 839,182
15 Australia 768,178
16 Netherlands 657,590
17 Turkey 402,710
18 Belgium 392,001
19 Sweden 384,927
20 Switzerland 379,758
21 Indonesia 364,459
Countries by nominal GDP.Source: IMF (2005)
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1 / 6 07.10.2 1:28 PM
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List of countries by GDP (nominal)From Wikipedia, the free encyclopedia
This article includes a list of countries of the world
sorted by their gross domestic product (GDP), the
value of all final goods and services produced within a
nation in a given year. The GDP dollar estimates
presented here are calculated at market or government
official exchange rates.
The first list below includes data for the year 2006 for all
181 members of the International Monetary Fund, for
which information is available. Data are in millions of
current United States dollars.
These figures do not include Somalia, Cuba, North Korea, Iraq, several small states in Europe (Andorra,
Monaco, San Marino, Liechtenstein, Vatican City) and the Pacific (Palau, Marshall Islands, Micronesia, Nauru
and Tuvalu) or dependencies (Greenland).
The second list is World Bank estimates for 2006.
2006 List by the International Monetary Fund 2006 List by the World Bank
Rank CountryGDP (millions of
USD)
— Gross world product 48,144,466
— European Union 14,527,140
1 United States 13,244,550
2 Japan 4,367,459
3 Germany 2,897,032
4 People's Republic of
China2,630,113 2
5 United Kingdom 2,373,685
6 France 2,231,631
7 Italy 1,852,585
8 Canada 1,269,096
9 Spain 1,225,750
10 Brazil 1,067,706
11 Russia 979,048
12 South Korea 888,267
13 India 886,867
14 Mexico 840,012
15 Australia 754,816 1
16 Netherlands 663,119
17 Belgium 393,590 1
18 Turkey 392,424
19 Sweden 385,293 1
20 Switzerland 377,240
Rank CountryGDP (millions of
USD)
— Gross world product 48,244,879
— European Union N/A
1 United States 13,201,819
2 Japan 4,340,133
3 Germany 2,906,681
4 China 2,668,071
5 United Kingdom 2,345,015
6 France 2,230,721a
7 Italy 1,844,749
8 Canada 1,251,463
9 Spain 1,223,988
10 Brazil 1,067,962
11 Russian Federation 986,940
12 India 906,268
13 South Korea 888,024
14 Mexico 839,182
15 Australia 768,178
16 Netherlands 657,590
17 Turkey 402,710
18 Belgium 392,001
19 Sweden 384,927
20 Switzerland 379,758
21 Indonesia 364,459
Countries by nominal GDP.Source: IMF (2005)
article
navigation
Main page
Contents
Featured content
Current events
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search
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in other languages
Català
Dansk
Deutsch
!""#$%&'
Español
!"#$%
Suomi
Français
日本語���
Bahasa Indonesia
Íslenska
Italiano
Magyar
Nederlands
Plattdüütsch
Português
Român!
Svenska
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Ti"ng Vi#t
??????
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&'#(
中文
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* Nominal GDP in millions of US dollars* All the estimates are based on the market exchange rate in 2006.
* Nominal GDP in millions of US dollars* All the estimates are based on PPP.
GDP ranking in PPP (IMF)
The difference Japan’s GDP is roughly ¥500 trillion, US GDP $13 trillion.
To compare these two GDPs, we have to convert ¥ into $.
Let e denote the market exchange rate, say ¥100/$1. Let p denote the PPP, say ¥110/$1. Both are conversion tools. e is used in the first table, p in the second.
In terms of e, ¥500 tril. = $5 tril. = ¥500/(¥100/$1) 2: Japan, 3:China, 4:Germany, 13:India
In terms of p, ¥500 tril. = $4.55 tril. = ¥500/(¥110/$1) 2: China, 3:Japan, 4:India, 5: Germany .
Which table is more accurate? But before that, what’s PPP?
What is PPP ? PPP (Purchasing Power Parity) : the long term equilibrium exchange rate of two countries to equalize their purchasing power.
Suppose Japan and the US are producing only “Big-mac”s and the prices of Big-macs in both countries are as follows;
In this case,
If $1 = ¥10, American people can buy a Japanese Big-mac at exactly the same price as in the US, and vice versa.
In the real world, Japan’s PPP is defined as the ratio of a price index in Japan to the same index in the US.
Japan USPrice ￥200 $20 PPP =
20020
= 10
PPP and exchange rate PPP : a long-term equilibrium exchange rate.
The market exchange rate is generally not equal to PPP, but it is said to have a tendency to converge to PPP.
If e > p =10 , then $20 > ¥200. Japanese Big-mac is cheaper than US Big-mac. American people will import Japanese Big-mac. The exports from Japan to the US will increase. The demand for the yen will increase. The value of the yen will rise. e will decrease ( approach to p ).
If e < p =10 , then vice versa.
GDP conversion again Let Ye = GDP/e and Yp = GDP/p .
Ye is used in the first GDP ranking table, Yp in the second.
In Japan, Ye > Yp i.e., e < p , which means: * the yen is overestimated in the market * domestic(exporting) products are expensive * foreign(importing) products are cheap
In China, Ye < Yp i.e., e > p , which means: * the yuan is underestimated in the market ( or maintained at a lower level by the government ) * domestic(exporting) products are cheap * foreign(importing) products are expensive
Using p is appropriate? Then, we have a surprising forecast.
A forecast: GDP rankingSource: BBC article(3rd.Mar.06) “China to dwarf G7 states”
An american research company predicts:
• by the year of 2050, .....
• China’s economy to almost double. It could be 43% bigger than the US ( on a PPP basis ).
• Japan to be overtaken by India’s economy.
• German, UK and French economies to be outstripped by Mexico and Brazil ( on a PPP basis ).
But, actually we have evidence to the contrary.
GDP per capita in PPP (IMF)
Convergence theory1. The convergence theory
Every country’s average income ultimately converges to the same level. The gap between rich and poor vanishes in the long run.
2. The dependency theory
Poor countries totally depend on rich countries.The gap persists because the latter exploit the former.
It seems difficult to confirm which theory is more plausible. But, before that, let’s take an overview of economic growth rate.
The rate of economic growth– equals to the growth rate of GDP – Typical index of business conditions:
boom, recession, depression, recovery– Positively correlated with ...
price, production, wages, employment, income, consumption, interest rates, tax revenue, and so on.
– Negatively correlated with ... unemployment, bankruptcy, government spending, budget deficit, issuance of deficit-financing bond, and so on.
The real economic growth rate
CorrelationLet y denote the average income of each country.
Let g denote the economic growth rate of each country.
The convergence theory says: y converges to the same level.
The country with a lower y has a higher g . y and g are in a negative correlation.
Let’s confirm it.
Exercise
1. Load the following file into Excel
http://rio.andrew.ac.jp/R/GDE.xls
2. Choose your favourite country to calculate the following
* g: GDP per capita from 1970 to 2000
* y: Annual economic growth rate from 1971 to 2000
* ga: Average of g for each decade, i.e., 70s, 80s, 90s.
* ya: Average of y for each decade.
Exercise (2)
3. Copy the equations which you already input to the other worksheets to apply the same calculation to the other countries.
4. Create a new worksheet.
5. Collect gas and yas of all the countries. Copy and paste them together into the new worksheet.
5. Calculate the correlation coefficient between ga and ya .
Calculation of average growth rate
Suppose that GDP of a country:
* was A in 1991
* was B in 2000
Let G denote the average growth rate in these 10 years.
We can use the excel function, =power( ) .
=power(B/A, 1/10) - 1
B = (1 + G)10A
So, (1 + G)10 =B
A
So, G = (B
A)
110 ! 1
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