Quick Reference Fact Guide to GDP - per capita
Even GDP per capita measures may have the same downside if inequality is high. For example, South Africa during apartheid ranked high in terms of GDP per capita, but the benefits of this immense wealth and income were not shared equally among the country. GDP does not take into account the value of household and other unpaid work. Some, including Martha Nussbaum , argue that this value should be included in measuring GDP, as household labor is largely a substitute for goods and services that would otherwise be purchased for value.
As a result, an economy can run down its assets yet, at the same time, record high levels of GDP growth, until a point is reached where the depleted assets act as a check on future growth".
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- Gross domestic product.
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They then went on to say that "it is apparent that the recorded GDP growth rate overstates the sustainable growth rate. Broader measures of wellbeing and wealth are needed for this and there is a danger that short-term decisions based solely on what is currently measured by national accounts may prove to be costly in the long-term". It has been suggested that countries that have authoritarian governments, such as the People's Republic of China, and Russia, inflate their GDP figures. From Wikipedia, the free encyclopedia. For other uses, see GDP disambiguation. A supply and demand diagram, illustrating the effects of an increase in demand.
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National agencies responsible for GDP measurement. This section needs expansion.
You can help by adding to it. Retrieved August 24, Retrieved 14 August Retrieved 3 June Economics and Economic Change. The Power of a Single Number: Retrieved August 1, Retrieved 25 April A Brief but Affectionate History.
Archived from the original on Bureau of Economic Analysis. Another term, "business current transfer payments", may be added. Also, the document indicates that the capital consumption adjustment CCAdj and the inventory valuation adjustment IVA are applied to the proprietor's income and corporate profits terms; and CCAdj is applied to rental income. Page retrieved November To convert GDP into GNI, it is necessary to add the income received by resident units from abroad and deduct the income created by production in the country but transferred to units residing abroad.
Bureau of Economic Analysis". Central Bureau of Statistics. The Federal Reserve Bank of Boston. Economics 2nd, revised ed. Introduction to the World Economy. India and its Contradictions. Belknap Press of Harvard University Press. Understanding national accounts Reprint. Review of Austrian Economics. Retrieved 16 May An Introduction to the Human Development and Capability: Measuring progress in a changing world".
Concepts, Sources and Methods , In depth explanations of how GDP and other national accounts items are determined. Lists of countries by GDP rankings. Per capita Past per capita Past and projected per capita Private consumption per capita Per hour Per person employed Ten largest historically 19th century. Per capita Past and projected per capita Sector composition.
PPP per capita Nominal per capita. Lists of countries by financial rankings List of international rankings List of top international rankings by country Lists by country. Economic classification of countries. Developed country Developing country Least Developed Countries World Bank high-income economy Newly industrialized country Heavily indebted poor countries.
By country past and projected per capita per capita. By country future estimates per capita per capita per hour worked per person employed. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness.
Levine  was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.
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The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth.
They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness.
Gu and Dong  emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility. However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume de facto indices on economic growth.
The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF .
The economic dimension of this index captures the volume and restriction of trade and capital flow of countries. Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin  and Dabour .
Those that used empirical model, investigated the effect of globalization for one country such as Ates  and Oyvat  , or did it for some OIC members in different groups such as East Asia by Guillaumin  or as group of developing countries by Haddad et al. Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.
This study uses a dynamic panel data model to investigate the effect of globalization on economic growth. The model can be shown as follows:. The group of control variables is comprised of variables frequently used in the growth literature including government consumption, secondary school enrolment as a proxy for human capital, inflation consumer price index , domestic investment, liquid liability to capture the financial development and ICRG as an index for institutional quality.
In other words, is a function of , as is time-invariant, therefore, is also a function of. It means that Eq. In addition, In Eq. In this case, the simple ordinary least squares OLS or fixed and random effects approaches can produce highly misleading results. This paper applies the generalized method of moments GMM panel estimator first suggested by Anderson and Hsiao  and later developed further by Arellano and Bond . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies.
The dynamic GMM procedure is as follow: Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables. The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments.
Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.
Gross domestic product - Wikipedia
The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.
In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR 1 and AR 2 statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency.
We restrict the moment conditions to a maximum of two lags on the dependent variable. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period — and is unbalanced.
Following  , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision. The economic dimension of KOF index is derived from Dreher et al. We use some other variables, along with economic globalization to control other factors influenced economic growth.
Table S2 in File S2 shows the variables, their proxies and source that they obtain. We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification Eq. The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development.
First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: Next, dummy variables were created for high-income Dum 3 , middle-income Dum 2 and low-income Dum 1 groups.
Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification. This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 — 3. Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital.
Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization. The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth  ,  ,  ,  ,  , . According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages.
By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.
The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken. In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies.
Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries.
Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as  ,  ,  , . It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries.
This provides some indication of how income and resources are distributed across the population. For example, although overall income levels may be unchanged, this could still mask a shift in distribution with the richest households taking a bigger slice than those at the poorer end of the scale. The median income line tracks disposable income quite closely, suggesing that there have been no major distributional changes in income since the recession.
What does GDP really tell us about economic growth?
Along with income, wealth is also a useful gauge of our material well-being. The ONS already calculates household wealth based on the value of our physical and financial assets. The green bar above shows how rising wealth was driven by a property price boom from Since the onset of the recession however, net property wealth fell, approaching its pre-crisis peak in Despite highlighting the pitfalls of output data, the stats will instead help provide a "more comprehensive and rounded view of the economy", say the ONS.
This is welcome news for economy watchers in the run up to the election, where argument and counter-argument about the true cost of living is already dominating political debate. But giving more attention to alternative economic variables is not likely to mark the death of GDP just yet. The sheer ubiquity of the measure, helped by the fact it remains one of the best ways to compare different economies, means that for all its rivals, it will be a while before GDP loses its status as the most important number in economics.
Accessibility links Skip to article Skip to navigation. Tuesday 18 September What does GDP really tell us about economic growth? It's one of the most important numbers in economics, but is GDP a good measure of our economic recovery? Are we really up to our eyeballs in the recovery or is GDP a false measure of our well-being?
It is defined by the ONS as "the sum total of the final output an economy produces. The pitfalls of GDP Taken on its own, GDP is an incomplete measure of the many facets of our modern economy - a fact that has led the likes of the ONS to give greater attention to different variables of growth and progress.