International Workshop
Shenzhen, China
April 2011
GDP
Roundtable Discussions
Some sharing by :
Frederick W H HO
1
National Accounting
• Production : inputs and outputs
• Distribution of income arising from production
(to: different producers,
to: employees and entrepreneurs/investors)
• The formation of capital – basis of future
production
• External relationship -- flow (inflow and outflow)
of goods and services across boundaries (of
territories/countries)
-- flow of income and funds
• Etc.
2
National Accounting
• Production:
“Value added” of the different industries: reflecting the
relative contributions of the different industries (“economic
sectors”) -- agriculture, fisheries,…manufacturing, …
construction,...distributive trade, …, services..) to the
economy
GDP = total of the “value added” of the
different industries
= Contributions attributed to the DOMESTIC
ECONOMY (many of the goods and
services produced by the domestic economy
have direct and indirect “imported contents”)
3
GDP by Production Approach
and Income Approach
Input (1) ：
Intermediate
consumption
Gross output
Producing
(B)
(A)
Value of
goods and
services
consumed
Value of products
Unit
Input (3):
Capital and entrepreneurship
Input (2):
Labour
(C)
A+C+D=B
Return to labour:
“Compensation of
employees”
(D)
Return to capital and entrepreneurship:
“Gross operating surplus”
Value added = ( B ) –( A ) [production approach]
= (C) +(D)
(4)
[income approach]
Physical flow
Value flow (i.e. money or
equivalent)
Value added of an industry = Sum of value added of all producing units in the industry
GDP (at factor cost) = Sum of value added of all industries
4
• Based on the the income approach,
we can see the situation of
 income earned by employees
vs
 income earned by entrepreneurs /investors
5
Uses of the Gross Output
(Goods and services produced by Producing Units)
 intermediate use :
outputs (goods and services)
used by some other industries
 final use (“final demand”) : outputs going to
> households
> government—for the production of
government services
> capital formation
> export
6
GDP by Final demand Approach
Consider only goods and services for “Final” Use
C = Private consumption
expenditure
C
G = Government consumption
expenditure
M
G
X
X = Exports of goods and
services
I
GDP = C
+ G + I + X 
i.e. Sum of the Final Uses
LESS the Imported Contents
I = Investment (Gross
domestic fixed capital
formation plus Changes in
inventories)
M
[ We are unable to remove the imported contents
at the various stages of domestic production ]
M = Imports of goods and
services
7
GDP by Final Demand Approach
• Under this approach, we work backwards
from the use of the goods (and services) produced
to arrive at the GDP.
• We add up the values of all the final goods and
services USED
and then remove the imported contents.
• We do the
REMOVAL of IMPORTED CONTENTS
at one go in the end as we can ONLY do so.
8
In GDP by Final Demand approach: We only look
at the products and services for final use;
otherwise there will be a lot of double counting
• From cotton to yarn ; and yarn to cloth; and cloth to
shirt ---• the yarn, if used by the cloth factory, is
“intermediate goods”; and the cloth, if used by a
local shirt factory, is “intermediate goods” too. IN
NOT counting the intermediate goods, we will not
incur double counting
• If the sales of spinning factory, weaving factory and
garment factory were added together, the value of
cotton would have been counted several times.
9
GDP by Final Demand approach
• For a piece of final product (or service),
-- there are usually both direct and indirect “imported contents”
--the value consist of “value added” by several industries
• Consider the shirt purchased by a local consumer -- cotton is spun into yarn, the yarn is woven into cloth, and the
cloth is finally sewn into a shirt. Thus for the shirt factory, it has not
imported the cloth, but indirectly it has imported cotton
-- the plastic button may be made locally, but the plastic material is
imported
--electricity is used in the several manufacturing processes, and
also by the retailer who sells the shirt to the consumer. Electricity is
generated by oil, which is imported. Oil is thus a common item of
imported content in many final goods (and services).
--also, many producers have to use transport services (transporting
the raw materials and finished goods) and vehicles use oil as fuel.
10
GDP by Final Demand Approach
C
C = Private consumption
expenditure
G = Government consumption
expenditure
M
G
X
I
GDP = C
+ G + I + X  M
1632 = 1006 + 142 + 367 + 3167  3047
I = Investment (Gross
domestic fixed capital
formation plus Changes in
inventories)
X = Exports of goods and
services
M = Imports of goods and
services
>> For C, G, I, X
only “FINAL goods and services” are counted
>> The above are 2009 figures in HK$ billion.
11
Total Final Demand
Total supply
(4680)
GDP + M
1632 + 3047
=
=
=
Total Final Demand
(4680)
C
+ G
1006 + 142
+ I
+ 367
+
X
+ 3167
Ratio to GDP
An indication of the relative economic significance of that
economic aggregate to the economy
 Ratio of X to GDP is 193%
 X has both domestic contents and imported contents. It is not
exactly a “component” of GDP. Hence it is totally possible for
the ratio to be bigger than 100%. And, we should not say that
“the share of exports in GDP is xx %”)
12
Tourism
• Tourists visit a territory and spend money on
hotels, restaurants, shopping, transportations
and tours.
• Considerable imported contents are in the goods
and services consumed.
• Also, while we always talk about the “tourism
industry”, it is not such a clear-cut industry.
Some retailers and restaurants depend much
on tourists’ expenditure but others may not.
• Again, it is more appropriate to refer to “ the ratio
of tourist expenditure to GDP “ rather than “the
share of tourist expenditure in GDP”
13
Government Consumption
•
A way of looking at Government Consumption Expenditure :
The government produces services which are used ”collectively” by the
community,
or, conceptually, we consider the services are consumed by the
government on behalf of all the citizens.
•
AND
To distinguish PRODUCTION and CONSUMPTION of government
services
from
their FINANCING -The government does not produce and market its services. It does not
make a “profit” even if there are “surpluses” in the Budget. Government gets
money from taxes and other receipts from the citizens. It pays wages and
buys materials needed in the course of performing its functions.
14
Value added of Government :
Government Consumption Expenditure
Input (1) ：
Intermediate
consumption e.g.
electricity, stationery,
rental services
Gross
Government
output(4)
Consumed by gov’t
on behalf of all
(Producer of
gov’t services)
Input (2):
Labour
residents
Input (3):
X
Capital and entrepreneurship
Physical flow
Value added = ( 4) - (1)
= (2) +(3) =(2) + 0 = (2) [[ Gross Operating Surplus is taken as zero]]
A method of “ Valuation of ‘Output’ by ‘Sum of Inputs’ is used, since the
output is not a marketable commodity { (4) = (1)+(2)+(3) }
15
National Accounting in
an Integrated Economic Statistics Programme
National Accounting is -the foundation and the core component of
an Integrated Economic Statistics Programme
for the National Statistical System
It enables an overall view of the entire economy.
It also facilitates improvement in the coherence of the
National Statistical System – checking of consistency
across different sectors of economic statistics, coordination of various statistical standards
16
Uses of national accounting statistics
•
Economic Analysis
– (a) Enabling macro-economic and
micro-economic analysis
– (b) Monitoring the performance of
the overall economy and the various
sectors
17
Uses of national accounting statistics
•
Macro-level policy analysis, formulation and
decision
–
–
–
–
–
(a) Sustaining the competitiveness of
successful industries
(b) Identifying and assisting new industries
(c) Demand and supply balances
(d) Balance between consumption and investment
(e) Reliance on imports in production and
consumption and capital formation
18
Uses of national accounting statistics
•
Action programme planning for
sectoral developments
– (a) tracking the developments in specific
economic sectors and determining action
strategies for their developments
– (b) sectoral productivity studies
19
Uses of national accounting statistics
•
Business
–
–
–
–
(a) identify profitable lines of business
(b) discover appropriate mix of products
(c) find optimum cost structure
(d) make investment decisions
20