EXPENDITURE APPROACH
January 30-February 1, 2013
Kingston, Jamaica
Background
The expenditure approach to calculating GDP is the
sum of household and government spending on
goods and services, investment in fixed capital
(construction, machinery and equipment), changes in
inventories and exports less imports of goods and
services.
Background
GDP by Expenditure Approach =
final consumption (C + G)
+
gross capital formation (I)
+
exports (X)
–
imports (M)
Expenditure Components
 Y = C + G + I + (X – M)
C
Consumption expenditure by household
G
Consumption expenditure by government
I
Gross Fixed Capital Formation
plus Change in Inventories
X
Value of Exports
M
Value of Imports
Household Final Consumption Expenditure
(HFCE)
 This consists of expenditure of resident
households on the consumption of goods and
services.
 For households, all consumed goods, whether
durable (cars, refrigerators, air-conditioners
etc.) or non-durable (food, clothes), are part
of final consumption.
Household Final Consumption
Expenditure (HFCE)
Includes:
 goods and services bought for final consumption by
households
 Estimated value of barter transactions
 goods produced for own final consumption by
households
 Imputed value of housing services produced by owner
occupiers
Household Final Consumption
Expenditure (HFCE)
 Services produced by employing paid domestic staff
 Exclusion: expenditure on fixed assets in the form of
dwellings or on valuables.
 Estimated using a commodity flow method
Government Consumption
Expenditure (GCE)
 Final consumption expenditure of government is the
value of goods and services produced by the industry
for its own use.
 The estimates are computed as gross output less sales
of goods and services by government entities.
Government Consumption
Expenditure (GCE)
Output is valued as the sum of the cost of production:
- Compensation of employees
- Intermediate consumption
- Consumption of fixed capital
- Other taxes(less subsidies) on production
Government Consumption
Expenditure (GCE)
 The main data sources are:
- Estimates of revenue and expenditure of
central government
- government educational institutions
- parish councils
- public health authorities
- statutory bodies.
Gross Capital Formation
Gross Fixed Capital Formation
 Gross fixed capital formation is defined as that part of
the current output of goods and services, which adds
to the stock of capital, and therefore increases the
future potential income flows of the economy.
Gross Capital Formation cont’d
 It includes produced capital goods (machinery,
buildings, roads, artistic originals etc.) and
improvements to non-produced assets.
 Gross fixed capital formation is estimated using a
commodity flow approach
Gross Capital Formation cont’d
Changes in Inventories
Inventories consist of:
 raw materials - goods owned by producers that have
been purchased for intermediate consumption but not
yet used
 finished goods - goods produced for sale but not yet
sold
 work in progress – output that is not yet sufficiently
processed for delivery to users
Gross Capital Formation cont’d
Changes in Inventories
 Goods entering into inventories are recorded when
products are acquired or produced, and valued at the
prices prevailing at the time
 Goods withdrawn from inventories are recorded when
products are sold or used, and valued at the prices
prevailing at that time
Gross Capital Formation cont’d
Changes in Inventories
The Jamaican system accepts the valuation placed on
inventories by the reporting establishments.
 Information is obtained from the
- Annual National Income Survey
- Financial statements
Net Exports
 International Merchandise Trade Statistics (STATIN)
is the data source for imports and exports of goods.
 Trade statistics
 Imports of goods are valued c.i.f
 exports of goods are valued f.o.b
 In the national accounts ,imports of goods are adjusted
to f.o.b
Net Exports cont’d
 Data for trade in services are obtained from the
Balance of Payments statistics.
Expenditure on GDP
 Currently GDP by Expenditure is estimated annually at
current prices.
 GDP by Expenditure at constant prices is compiled but
not yet published
Expenditure on GDP (cont’d)
Expenditure Components
2011
J$M
Final Consumption Expenditure
1,261,961
Household
HFCE
Government
GCE
Gross Capital Formation
2011
J$M
1,063,536
198,425
GCF
Gross Fixed Capital Formation
GFCF
Inventories
Inv
Gross Domestic Expenditure
264,044
258,015
6,029
1,526,004
Export of Goods and Services
Exports
383,866
Less Import of Goods and Services
Imports
668,087
Expenditure on GDP
1,241,783
Expenditure on GDP (cont’d)
GDP by Expenditure 2011
22.9%
0.5%
HFCE
Government
20.8%
GFCF
85.6%
16.0%
Inventories
X-M
THANK YOU