Approaches to Analysing Gross Domestic Product

Global Gross Domestic Product

The global Gross Domestic Product is the collective gross national product of all the countries in the world.

Gross Domestic Product =Private expenditure + Gross Investment + Government Consumption + (Exports−Imports)

The global Gross Domestic Product is the total of market value of all acceptably recognized final goods and services produced within a country throughout a year or a given period of time. Gross Domestic Production value the output generated within the borders of a country. Gross Domestic Product is made out of goods and services processed, available to be purchased in the market and additionally some nonmarket production, for example, education or defense services given by the state government. In this way the sum of all countries Gross Domestic Product adds up to the global Gross Domestic Product. Following table shows the global Gross Domestic Product for the last few years.

Source: World Development Indicators

Contribution to the Global Gross Domestic Production ranked by theWorld Bank(2005–2012)

As shown in the below table, United States is the largest contributor to the global Gross Domestic Product. These are the leading 10 countries who contribute to the global Gross Domestic Product most.

Not all useful activities are included in Gross Domestic Product. For instance, unpaid work, (that performed in the home or by volunteers) and black-market activities are not included since they are difficult to measure and value accurately. That means, for example, a salary paid for a domestic servant in a house will be added to Gross Domestic Product, but if the same work is done by the mother of the family, it will not be added.

Gross Domestic Product is gathered/ measured at current prices or nominal prices. Therefore, with regards to the matter of comparing, one cannot compare two periods without making modification for inflation. To figure out the real Global Gross Domestic Product, its nominal value must be adjusted to consider price changes to allow us to see whether the value of output has gone up because it is being produced additionally or simply because prices are greater than the previous year.

Theoretically, Gross Domestic Product can be viewed in three different ways:

• The production approach- Adds up the value-added at each stage of production, where value-added is defined as total sales less the value of midway inputs into the production process. For example, flour would be a midway input and bread the final product; or an engineer’s services would be a midway input and the building is the final product. So the total of value difference between bread & flour and building and service cost will be added under the production approach.
• The expenditure approach-Sums up the value of purchases made by final users. For example, the consumption of food, clothes, electric items and medical services by households, the funds in equipment and technology by companies, and the purchases of goods and services by the government and foreigners.
• The income approach-Adds up the incomes generated by production. For example, the payment employees receive and the operating surplus of companies (roughly sales less costs).

IMF’s External Relations Department.

Gross Domestic Product is important since it gives information about the size of the economy and how an economy is performing. The growth rate of true Gross Domestic Product is frequently used as an indicator of the general strength of the economy. For instance, when the economy is strong, you will typically see low unemployment and wage increases as organizations demand labor to meet the developing economy. A significant change in Gross Domestic Product, if up or down, normally has a critical impact on the stock market. It is because, a terrible economy normally means lower profits for organizations, which thusly means lower stock prices. Investors really worry about negative Gross Domestic Product development, since it will affect their capital gains, which is also one of the elements economists use to figure out if an economy is in a recession.

It is important to understand what the Gross Domestic Product does not allow us to understand and what it does not reveal. Gross Domestic Product is not a measure of the overall standard of living or well-being of a nation. As a case, a country can get an economic growth with the cost of natural harm or other external expenses, for example, noise. Then the Gross Domestic Production will not change, but there will be an increase in Economic Growth.

Green Gross Domestic Product

Green Gross Domestic Product is an effort by economists to measure the development of an economy compared with the damage creation done to the natural environment. This is carried out by subtracting the costs of natural and biological harm done in a particular period of time from the Gross Domestic Product, or Gross Domestic Product, from that some time. Subsequently, the harm done to the environment, in general is considered into the mathematical equation to give a clearer picture of the outcomes of growing an economy. Unfortunately, green Gross Domestic Product could be challenging to measure as a result of the issues inherent in attempting to quantify the costs of natural and ecological harm.

Green Gross Domestic Product = Gross Domestic Product (traditional) – Depletion of natural resources – cost of pollution

In later decades China’s economy has been developing on average by more than 8 per cent per annum. On one side, this has been a clear economic achievement and on the other side it also has brought about many environmental problems that. What was the sad part is that, China’s environmental issues are getting more serious along with its economic development. So in order to change the Gross Domestic Product -oriented improvement at path of the local level, green Gross Domestic Product indicator was introduced, which should be coordinated with economic development and environmental damage costs together. China Issues World’s First green Gross Domestic Product pollution Cost $64 Billion in 2004 within the country’s environment.

China Green National Accounting Study Report 2004: SEPA release

Environmental concerns have come to the head of almost all aspects of life, as individuals get to be increasingly concerned with washed-out of natural resources and polluted environments. These concerns are regularly not taken into consideration when measuring the force of an economy. The Gross Domestic Product, which is an estimation of both the consumption and production within a country, is not intended to envelop these natural issues. Subsequently, green Gross Domestic Product has been at the front line of efforts to marry economic and environmental concerns.

There are not less than 3 methods available to figure out the costs for natural resources and environmental corruption which could be used when making changes to arrive at a green Gross Domestic Product from global Gross Domestic product. The so-called;

• Prevention cost method – This is dependent on a calculation of how much it would cost to prevent the environmental harm ahead of time before the real damage is happned
• The damage cost method – This is dependent upon an estimation of the costs rising up out of environmental damages due to negligence.
• Willingness-to-pay method – This is dependent upon overviews of the willingness of environmental consumers to pay in order to prevent environmental damages.

Alternatively, one could use estimates of the ability to accept such harms in the environment. The issue is that for each of the methods used for calculating degradation and depletion, the response will generally be quite different, bringing about altogether different estimates of a green Gross Domestic Product. There is no remarkable or correct answer to the question of what is the value of green Gross Domestic Product.

There is no doubt that green Gross Domestic Product might s have been an extremely useful indicator in the event that it could be calculated in a reliable manner. Subsequently, green Gross Domestic Product is a great idea, yet unfortunately too unreliable and difficult to use it at present, because of the above theoretical and practical problems. This is the circumstances in China, as well as in worldwide. Actually, none of the countries in the world uses green Gross Domestic Product for the measurement of Economic growth due to its inaccuracy and difficulty in arriving at a figure which is reliable. Rather, for the measurement and reporting on Economic growth, countries worldwide accept Gross Domestic Production. This is an exceptionally essential international indicator that all the nations should take notice of. Also since the fact of natural harm not being able to define precisely; green Gross Domestic Production becomes less valid. That is, one country would count the damage caused through smoking under natural harm depending on their cultural and social context, where another country will accept smoking and will not consider as harmful.

Considering all of the above facts, we can come to the conclusion, though green Gross Domestic Production gives a clearer and fair measurement of the Economy, due to its irregularity, it is the Global Gross Domestic Production that is used in among the countries.