CHAPTER 8

GROSS DOMESTC PRODUCT(GDP)-AN OVERVIEW

8.1 Domestic product is an indicator of overall generated through the production activity is production activity. GDP is a measure of distributed between the two factors of production. The level of production is production, namely, labour and capital, important because it largely determines how which receive respectively the salaries and much a country can afford to consume and it the operating surplus/mixed income of self also affects the level of employment. The employed. Thus the income approach GDP consumption of goods and services, both is the sum of compensation of employees, individually and collectively, is one of the gross operating surplus and gross mixed most important factors influencing the income plus taxes net of subsidies on welfare of a community. The concept of production. In the National Accounts GDP in the 1993 SNA framework has been Statistics of India, the production approach briefly discussed in the following paragraphs. GDP is considered firmer estimate; and the NAS presents the discrepancy with the expenditure approach GDP explicitly. 8.2 It should be noted, however, that GDP is not intended to measure the production taking Production approach GDP place within the geographical boundary of 8.3 GDP is a concept of value added. It is the the economic territory. Some of the sum of gross value added of all resident production of a resident producer may take producer units (institutional sectors, or place abroad, while some of the production industries) plus that part (possibly the total) taking place within the geographical of taxes, less subsidies, on products which is boundary of the economy may be carried out not included in the valuation of output. by non-resident producer units. For Gross value added is the difference between example, a resident producer may have output and intermediate consumption. teams of employees working abroad temporarily on the installation, repair or 8.4 The underlying rationale behind the concept servicing of equipment. This output is an of GDP for the economy as a whole is that it export of a resident producer and the should measure the total gross values added productive activity does not contribute to the produced by all institutional units resident in GDP of the country in which it takes the economy. However, while the concept of places. Thus, the distinction between GDP is based on this principle, GDP as resident and non-resident institutional units defined in the System may include not only is crucial to the definition and coverage of the sum of the gross values added of all GDP. In practice, of course, most of the resident producers but also various taxes on productive activity of resident producers products, depending upon the precise ways takes place within the country in which they in which outputs, inputs and imports are are resident. However, producers in service valued. industries which typically have to deliver their outputs directly to their clients 8.5 Output: Output is a concept that applies to a wherever they are located are increasingly producer unit- an establishment or tending to engage in production in more enterprise–rather than a process of than one country, a practice which is production. Output has to be defined in the encouraged by rapid transportation and context of a production account (refer to instantaneous communication facilities. Table 1, Appendix 5.1), and production There are three equivalent approaches to accounts are compiled for establishments or measure the GDP, namely the production, enterprises, and not for processes of income, and expenditure. The production production. Output therefore consists only of approach GDP measures the sum of value those goods and services; that are produced added of all economic activities within the within an establishment that becomes country’s territory (sum of output minus available for use outside that establishment. intermediate consumption) plus indirect When an enterprise contains more than one taxes minus subsidies on products. The establishment, the output of the enterprise expenditure approach GDP depicts the final is the sum of the outputs of its component use (demand) of the output and comprises establishments. (i) Government Final Consumption Expenditure (GFCE) (ii) Private Final 8.6 The output of most goods or services in Consumption Expenditure (PFCE) (iii) Gross majority of the cases is recorded when their Fixed Capital Formation (GFCF), (iv) Change production is completed. However, when it in Stocks (CIS), and (v) Net Export of Goods takes a long time to produce a unit of & Services. The income (value added) output, it becomes necessary to recognize

National Accounts Statistics-Sources & Methods, 2007 Î 83 CHAPTER 8 that output is being produced continuously amounts the producers are willing to supply and to record it as "work-in-progress". For and on the amounts purchasers wish to example, the production of certain buy. Apart from certain service industries agricultural goods or large durable goods for which special conventions are adopted, such as ships or buildings may take months the value of the market output of a producer or years to complete. In such cases, it is given by the sum of the values of the would distort economic reality to treat the following items for the period in question: output as if it were all produced at the (a) The total value of goods and services moment of time when the process of sold (at economically significant prices); production happens to terminate. In any (b) The total value of goods or services case, whenever a process of production, bartered; however long or short, extends over two or (c) The total value of goods or services used more accounting periods, it is necessary to for payments in kind, including calculate the work-in-progress completed compensation in kind; within each of the periods in order to be able (d) The total value of goods or services to measure how much output is produced in supplied by one establishment to each period. another belonging to the same market enterprise to be used as intermediate 8.7 Goods or services produced as outputs may inputs; be used in several different ways. Apart from (e) The total value of changes in inventories certain service producers, such as financial of finished goods and work-in-progress intermediaries and wholesale and retail intended for one or other of the above traders whose outputs have special uses. characteristics, goods or services produced as outputs must be disposed of by their 8.10 Output produced for own final use (P.12): owners in one or more of the following ways Such output consists of goods or services during the period in which they are that are retained for their own final use by produced. Output may: the owners of the enterprises in which they • be sold: only goods or services sold at are produced. As corporations have no final economically significant prices are included consumption, output for own final here; consumption is produced only by • be bartered in exchange for other goods, unincorporated enterprises: for example, services or assets, provided to their agricultural goods produced and consumed employees as compensation in kind, or by members of the same household. The used for other payments in kind; output of domestic and personal services • enter the producer's inventories prior to produced for own consumption within their eventual sale, barter or other use: households is not included, although housing incomplete outputs enter the producer's services produced for own consumption by inventories in the form of additions to owner-occupiers and services produced on work-in-progress; own account by employing paid domestic • be supplied to another establishment staff are included under this heading. belonging to the same enterprise for use, as intermediate inputs into the later's 8.11 Goods or services used for own gross fixed production; capital formation can be produced by any • be retained by their owners for own final kind of enterprise, whether corporate or consumption or own gross fixed capital unincorporated. They include, for example, formation; the special machine tools produced for their • be supplied free, or sold at prices that are own use by engineering enterprises, or not economically significant, to other dwellings, or extensions to dwellings, institutional units, either individually or produced by households. A wide range of collectively. construction activities may be undertaken for the purpose of own gross fixed capital 8.8 A fundamental distinction is drawn between formation in rural areas, including communal market output, output produced for own construction activities undertaken by groups final use and other non-market output. of households.

8.9 Market output (P.11): Market output is 8.12 The value of output produced for own final output that is sold at prices that are use is given by the sum of the values of the economically significant or otherwise following items for the period in question: disposed of on the market, or intended for sale or disposal on the market. Prices are (a) The total value of goods and services said to be economically significant when produced by household enterprises and they have a significant influence on the consumed by the same households; National Accounts Statistics-Sources & Methods, 2007 Î 84 CHAPTER 8 (b) The total value of the fixed assets free, but they are not intended to eliminate produced by an establishment that are such excess demand. Once a decision has retained within the same enterprise for been taken on administrative, social or use in future production (own-account political grounds about the total amount of a gross fixed capital formation); particular non-market good or service to be (c) The total value of changes in inventories supplied, its price is deliberately fixed well of finished goods and work-in-progress below the equilibrium price that would clear intended for one or other of the above the market. The difference between a price uses. that is not economically significant and a zero price is, therefore, a matter of 8.13 Additions to work-in-progress on structures degree. The price merely deters those units intended for own use are treated as whose demands are the least pressing acquisitions of fixed assets by their without greatly reducing the total level of producers. They are therefore recorded demand. under (b) instead of (c) above. 8.16 The value of the non-market output of a 8.14 Other non-market output (P.13): It consists producer (other than output produced for of goods and individual or collective services own final use) is given by the sum of the produced by non-profit institutions serving values of the following items for the period households (NPISHs) or government that are in question: supplied free, or at prices that are not economically significant, to other (a) The total value of goods and services institutional units or the community as a supplied free, or at prices that are not whole. Such output may be produced for economically significant, to other two reasons: institutional units, either individually or collectively; (a) It may be technically impossible to make individuals pay for collective (b) The total value of goods or services services because their consumption supplied by one establishment to another cannot be monitored or controlled. The belonging to the same non-market producer pricing mechanism cannot be used when to be used as intermediate inputs; transactions costs are too high and there is market failure. The production of (c) The total value of changes in inventories such services has to be organized of finished goods and work-in-progress collectively by government units and intended for one or another of the above financed out of funds other than receipts uses. from sales, namely taxation or other government incomes; 8.17 As prices that are not economically significant may reflect neither relative (b) Government units and NPISHs may also production costs nor relative consumer produce and supply goods or services to preferences, they do not provide a suitable individual households for which they basis for valuing the outputs of goods or could charge but choose not to do so as services concerned. The non-market output a matter of social or economic of goods or services sold at these prices is, policy. The most common examples are therefore, valued in the same way as goods the provision of education or health or services provided free, i.e., by their costs services, free or at prices that are not of production. Part of this output is economically significant, although other purchased by households, the remainder kinds of goods and services may also be constituting final consumption expenditures supplied. by government units or NPISHs.

8.15 A price is said to be not economically 8.18 Intermediate consumption (P.2): In the significant when it has little or no influence system of national accounts, the on how much the producer is prepared to intermediate inputs are recorded and valued supply and is expected to have only a at the time they enter the production marginal influence on the quantities process, while outputs are recorded and demanded. It is thus a price that is not valued as they emerge from the process. quantitatively significant from the point of Intermediate inputs are normally valued at view of either supply or demand. Such purchaser’s prices and outputs at basic prices are likely to be charged in order to prices, or alternatively at producer’s prices if raise some revenue or achieve some basic prices are not available. The increase reduction in the excess demand that may between the value of the intermediate inputs occur when services are provided completely and the value of the outputs is the gross National Accounts Statistics-Sources & Methods, 2007 Î 85 CHAPTER 8 value added against which the consumption production, as distinct from the time it was of fixed capital, taxes on production(less acquired by the producer. In practice, the subsidies) and compensation of employees two times coincide for inputs of services, but must be charged. The positive or negative not for goods, which may be acquired some balance remaining is the net operating time in advance of their use in surplus or mixed income. The definition, production. A good or service consumed as measurement and valuation of outputs and an intermediate input is normally valued at inputs are, therefore, fundamental to the the purchaser's price prevailing at the time it system. Intermediate consumption consists enters the process of production; that is, at of the value of the goods and services the price the producer would have to pay to consumed as inputs by a process of replace it at the time it is used. production, excluding fixed assets whose consumption is recorded as consumption of 8.22 In practice, establishments do not usually fixed capital. The goods or services may be record the actual use of goods in production either transformed or used up by the directly. Instead, they keep records of production process. Some inputs re-emerge purchases of materials and supplies intended after having been transformed and to be used as inputs and also of any changes incorporated into the outputs; for example, in the amounts of such goods held in grain may be transformed into flour which in inventory. An estimate of intermediate turn may be transformed into bread. Other consumption during a given accounting inputs are completely consumed or used up; period can then be derived by subtracting for example, electricity and most services. the value of changes in inventories of materials and supplies from the value of 8.19 Intermediate consumption does not include purchases made. Changes in inventories of expenditures by enterprises on valuables materials and supplies are equal to entries consisting of works of art, precious metals less withdrawals and recurrent losses on and stones and articles of jewellery goods held in inventory. fashioned out of them. Valuables are assets acquired as stores of value: they are not 8.23 When goods or services produced within the used up in production and do not deteriorate same establishment are fed back as inputs physically over time. Expenditures on into the production within the same valuables are recorded in the capital establishment, they are not recorded as part account. Intermediate consumption also of the intermediate consumption or the does not include costs incurred by the output of that establishment. On the other gradual using up of fixed assets owned by hand, deliveries of goods and services the enterprise: the decline in their value between different establishments belonging during the accounting period is recorded as to the same enterprise are recorded as consumption of fixed capital. However, outputs by the producing establishments and intermediate consumption does include the must, therefore, be recorded as intermediate rentals paid on the use of fixed assets, inputs by the receiving establishments. whether equipment or buildings, that are leased from other institutional units, and 8.24 The following types of goods and services also fees, commissions, royalties, etc., provided to employees must be treated as payable under licensing arrangements. part of intermediate consumption:

8.20 Intermediate consumption includes the value (a) Tools or equipment used exclusively, or of all the goods or services used as inputs mainly, at work; into ancillary activities such as purchasing, sales, marketing, accounting, data (b) Clothing or footwear of a kind which processing, transportation, storage, ordinary consumers do not choose to maintenance, security, etc. The goods and purchase or wear and which are worn services consumed by these ancillary exclusively, or mainly, at work; e.g., activities are not distinguished from those protective clothing, overalls or consumed by the principal (or secondary) uniforms. However, uniforms or other activities of a producing establishment even special clothing which employees choose though the levels at which ancillary activities to wear extensively off-duty instead of are carried out do not usually vary ordinary clothing should be treated as proportionately with the level of the principal remuneration in kind; activity. (c) Accommodation services at the place of 8.21 The intermediate consumption of a good or work of a kind which cannot be used by service is recorded at the time when the the households to which the employees good or service enters the process of

National Accounts Statistics-Sources & Methods, 2007 Î 86 CHAPTER 8 belong - barracks, cabins, dormitories, similar deductible tax, invoiced to the huts, etc.; purchaser. It excludes any transport charges invoiced separately by the producer. (d) Special meals or drinks necessitated by exceptional working conditions, or meals 8.28 The amounts charged by non-market or drinks provided to servicemen or producers when they sell output at prices others while on active duty; that are not economically significant do not constitute basic or producers' prices as just (e) Transportation and hotel services defined. Prices that are not economically provided while the employee is traveling significant are not used to value the output on business; sold at such prices: instead, such output is valued by its costs of production. Neither (f) Changing facilities, washrooms, showers, the producer's nor the basic price includes baths, etc. necessitated by the nature of any amounts receivable in respect of VAT, or the work; similar deductible tax, invoiced on the output sold. The difference between the two (g) First aid facilities, medical examinations is that to obtain the basic price any other tax or other health checks required because payable per unit of output is deducted from of the nature of the work. the producer's price while any subsidy receivable per unit of output is added. Both 8.25 Employees may sometimes be responsible producers' and basic prices are actual for purchasing the kinds of goods or services transaction prices which can be directly listed above and be subsequently observed and recorded. When output reimbursed in cash by the employer. Such produced for own final consumption, or own cash reimbursements must be treated as gross fixed capital formation, is valued at intermediate expenditures by the employer basic prices, it is valued at the estimated and not as part of the employee's wages and basic prices that would be receivable by the salaries. The provision of other kinds of producer if the output were to be sold on the goods and services, such as meals, ordinary market. housing services, the services of vehicles or other durable consumer goods used 8.29 When output is recorded at basic prices, any extensively away from work, transportation tax on the product actually payable on the to and from work, etc. should be treated as output is treated as if it were paid by the remuneration in kind. purchaser directly to the government instead of being an integral part of the price paid to 8.26 Valuation of output, Intermediate the producer. Conversely, any subsidy on Consumption and Value Added: More than the product is treated as if it were received one set of prices may be used to value directly by the purchaser and not the outputs and inputs depending upon how producer. The basic price measures the taxes and subsidies on products, and also amount retained by the producer and is, transport charges, are recorded. Moreover, therefore, the price most relevant for the value added taxes, (VAT), and similar producer's decision-taking. deductible taxes may also be recorded in more than one way. 8.30 Gross value added at basic prices: Gross value added at basic prices is defined as 8.27 Basic and producers' prices: The System output valued at basic prices less utilizes two kinds of output prices, namely, intermediate consumption valued at basic prices and producers' prices: purchasers' prices. Although the outputs and inputs are valued using different sets of (a) The basic price is the amount receivable prices, for brevity the value added is by the producer from the purchaser for a described by the prices used to value the unit of a good or service produced as output outputs. From the point of view of the minus any tax payable, and plus any subsidy producer, purchasers' prices for inputs and receivable, on that unit as a consequence of basic prices for outputs represent the prices its production or sale. It excludes any actually paid and received. Their use leads transport charges invoiced separately by the to a measure of gross value added which is producer; particularly relevant for the producer.

8.31 Gross value added at producers' prices: It is (b) The producer's price is the amount defined as output valued at producers' prices receivable by the producer from the less intermediate consumption valued at purchaser for a unit of a good or service purchasers' prices. As already explained, in produced as output minus any VAT, or the absence of VAT, the total value of the National Accounts Statistics-Sources & Methods, 2007 Î 87 CHAPTER 8 intermediate inputs consumed is the same 8.35 Gross value added at factor cost is whether they are valued at producers' or at essentially a measure of income and not purchasers' prices, in which case this output. It represents the amount remaining measure of gross value added is the same for distribution out of gross value added, as one which uses producers' prices to value however defined, after the payment of all both inputs and outputs. It is an taxes on production and the receipt of all economically meaningful measure that is subsidies on production. It makes no equivalent to the traditional measure of difference which measure of gross value gross value added at market added is used because the measures prices. However, in the presence of VAT, considered above differ only in respect of the the producer's price excludes invoiced VAT, amounts of the taxes or subsidies on and it would be inappropriate to describe production which remain payable out of this measure as being at "market" prices. gross value added

8.32 Thus in both the cases measure of gross 8.36 Claims on gross value added, other than value added and that described in the payments of taxes, less subsidies, to previous section use purchasers' prices to government used to be described as "factor value intermediate inputs. The difference incomes". While the concept of factor between the two measures is entirely income is no longer used in the 1993 SNA, attributable to their differing treatments of gross value added at factor cost could be taxes or subsidies on products payable on interpreted as measuring the value of the outputs (other than invoiced VAT). By fund out of which so-called "factor incomes" definition, the value of output at producers' can be paid: it follows that it is equal to the prices exceeds that at basic prices by the total value of the "factor" incomes generated amount, if any, of the taxes, less subsidies, by production. on the output so that the two associated measures of gross value added must differ Income Approach GDP by the same amount. 8.37 GDP can also be obtained by adding together the income components that make up value 8.33 Gross value added at factor cost: It is not a added. GDP by income approach covers only concept used explicitly in the 1993 the incomes generated within the domestic SNA. Nevertheless, it can easily be derived economy. from either of the measures of gross value added presented above by subtracting the 8.38 Components of value added: In principle, value of any taxes, less subsidies, on GDP can be computed by adding together production payable out of gross value added the components of value added and taxes as defined. For example, the only taxes on less subsidies on products. Value added production remaining to be paid out of gross includes: value added at basic prices consist of "other a) Compensation of employees: taxes on production". These consist mostly Compensation of employees is the total of current taxes (or subsidies) on the labour remuneration in cash or in kind payable or capital employed in the enterprise, such by employers to employees for the work as payroll taxes or current taxes on vehicles done. Direct social transfers from or buildings. Gross value added at factor employers to their employees or retired cost can, therefore, be derived from gross employees and their family, such as value added at basic prices by subtracting payments for sickness, educational "other taxes, less subsidies, on production". grants and pensions that do not set up an independent fund, are also imputed 8.34 The conceptual difficulty with gross value to compensation of employees; added at factor cost is that there is no b) Other taxes less subsidies on observable vector of prices such that gross production: Other taxes less subsidies value added at factor cost is obtained on production are taxes payable by directly by multiplying the price vector by employers to carry out production, the vector of quantities of inputs and irrespective of sales or profitability. They outputs that defines the production may be payable as license fees or as process. By definition, "other taxes or taxes on the ownership or use of land, subsidies on production" are not taxes or buildings or other assets used in subsidies on products that can be eliminated production or on the labour employed or from the input and output prices. Thus, on the compensation of employees paid. despite its traditional name, gross value They are not taxes paid on values of added at factor cost is not strictly a measure sales or produced outputs, which are of value added. called taxes on products;

National Accounts Statistics-Sources & Methods, 2007 Î 88 CHAPTER 8 c) Consumption of fixed capital: subscriptions, contributions or donations or Consumption of fixed capital is the cost property income. Expenditures on the of fixed assets used up in production in outputs of non-market producers that are the accounting period; and provided free, or at prices that are not d) Gross operating surplus: Gross operating economically significant, to individual surplus is the residual obtained by households or the community account for deducting the above components from most of the final consumption expenditure value added. Thus, gross operating by governments and NPISHs. It is important surplus includes interest payable to to distinguish between expenditures made lenders of financial assets, or rent by general government or NPISHs on the payable to rentiers of non-produced outputs of non-market producers - i.e., the assets, such as land and sub-soil assets. goods, individual or collective services they actually produce - and the intermediate Expenditure Approach GDP expenditures and other costs incurred by 8.39 Household final consumption expenditure non-market producers owned by general (P.3): consists of expenditure incurred by government or NPISHs in the course of resident households on consumption goods producing those goods or services. The or services. Final consumption expenditure distinction between the inputs to, and excludes expenditure on fixed assets in the outputs from, non-market processes of form of dwellings or on valuables. Dwellings production needs to be emphasized because are goods used by their owners to produce the final consumption expenditure made by housing services. Expenditure on dwellings general government or NPISHs must be by households, therefore, constitutes gross incurred on the outputs. The values of these fixed capital formation. When dwellings are expenditures are equal to the imputed rented by their owners, rentals are recorded values of the non-market outputs less the as output of housing services by owners and values of any receipts from sales. These final consumption expenditure by receipts may be derived from sales of some tenants. When dwellings are occupied by goods or services at prices that are not their owners, the imputed value of the economically significant or from sales of a housing services enters into both the output few goods or services at prices that are and final consumption expenditure of the economically significant (sales of secondary owners. Valuables are expensive durable market output). goods that do not deteriorate over time, are not used up in consumption or production, 8.41 Saving: Saving is the balancing item in the and are acquired primarily as stores of use of income account. Saving represents value. They consist mainly of works of art, that part of disposable income that is not precious stones and metals and jewellery spent on final consumption goods and fashioned out of such stones and services. It may be positive or negative metals. Valuables are held in the depending on whether disposable income expectation that their prices, relative to exceeds final consumption expenditure, or those of other goods and services, will tend vice versa. Assuming that saving is positive, to increase over time, or at least not the unspent income must be used to acquire decline. Although the owners of valuables assets or reduce liabilities. In so far as may derive satisfaction from possessing unspent income is not used deliberately to them, they are not used up in the way that acquire various financial or non-financial household consumption goods, including assets, or to reduce liabilities, it must consumer durables, are used up over time. materialize as an increase in cash, itself a financial asset. If saving is negative, some 8.40 Consumption expenditures incurred by financial or non-financial assets must have general government and NPISHs (P.3): The been liquidated, cash balances run down or treatment of consumption expenditures some liabilities increased. Thus, saving incurred by general government and non- provides the link between the current profit institutions serving households accounts of the System and the subsequent (NPISHs) serving households is the accumulation accounts. If saving is zero, same. Expenditures on a wide range of i.e., if final consumption expenditure equals consumption goods and services are disposable income, the institutional unit is incurred by general government or by not obliged to liquidate any assets or change NPISHs, either on collective services or on any of its liabilities. Therefore, disposable selected individual goods or services. The income can, therefore, be interpreted as the government expenditures are financed maximum amount that an institutional unit principally out of taxation or other can afford to spend on final consumption government revenues while those of the goods and services in the accounting period NPISHs are financed principally out of without having to reduce its cash, liquidate

National Accounts Statistics-Sources & Methods, 2007 Î 89 CHAPTER 8 other assets or increase its liabilities. Non- (iii) Machinery and equipment; financial and financial corporations have no (iv) Cultivated assets - trees and final consumption expenditure or actual final livestock that are used repeatedly or consumption. Their net saving is equal to continuously to produce products such as their net disposable fruit, rubber, milk, etc.;

8.42 Gross capital formation is measured by the (b) Acquisitions, less disposals, of new and total value of the gross fixed capital existing intangible fixed assets, sub-divided formation, changes in inventories and by type of asset into: (i) Mineral acquisitions less disposals of valuables. exploration; (ii) Computer software; (iii) Gross fixed capital formation is measured by Entertainment, literary or artistic originals; the total value of a producer's acquisitions, (iv) Other intangible fixed assets; less disposals, of fixed assets during the accounting period plus certain additions to (c) Major improvements to tangible non- the value of non-produced assets realised by produced assets, including land; the productive activity of institutional units. Fixed assets are tangible or intangible (d) Costs associated with the transfers of assets produced as outputs from processes ownership of non-produced assets. of production that are themselves used repeatedly or continuously in other processes of production for more than one Main identities year. There is substantial diversity in the 8.43 Given the general explanations of the different types of gross fixed capital previous section, the main identities formation that may take place. The connecting the aggregates of the SNA 1993 following main types may be distinguished: are summarized in this section: GDP at market prices is defined from the (a) Acquisitions, less disposals, of new or expenditure side as: existing tangible fixed assets, subdivided by type of asset into: (i) Dwellings; (ii) Other buildings and structures; Household final consumption expenditure at purchasers' prices + NPI final consumption expenditure at purchasers' prices + Government final consumption expenditure at purchasers' prices + Gross fixed capital formation at purchasers' prices + Acquisition less disposals of valuables at purchasers' prices + Changes in inventories + Exports at purchasers' prices at the frontier (f.o.b.) - Imports valued f.o.b.

8.44 Given this definition of GDP, the following taken over all resident producers: identities hold when the summations are

(a) GDP = the sum of the gross values added at producers' prices + taxes, less subsidies, on imports + non-deductible VAT;

(b) GDP = the sum of the gross values added at basic prices + all taxes, less subsidies, on products

(c) GDP = the sum of the gross values added at factor cost + all taxes, less subsidies, on products + all other taxes, less subsidies, on production.

In cases (b) and (c) the item taxes, less subsidies, on products includes taxes and subsidies on imports as well as on outputs

Volume measures

National Accounts Statistics-Sources & Methods, 2007 Î 90 CHAPTER 8 8.45 The SNA emphasizes calculation at constant prices, that is, use of the system(s) of prices 8.47 GDP is also equal to the sum of the final which prevailed in a past period(s). The uses of goods and services (all uses except changes over time in the current values of intermediate consumption) measured in flows of goods and services and of many purchasers' prices, less the value of imports kinds of assets can be decomposed into of goods and services. changes in the prices of these goods and services or assets and changes in their 8.48 Finally, GDP is also equal to the sum of volumes. Flows or stocks at constant prices primary incomes distributed by resident take into account the changes in the price of producer units. each item covered. They are said to be in volume terms. However, many flows or 8.49 Net domestic product (NDP) is obtained by stocks do not have price and quantity deducting the consumption of fixed capital dimensions of their own. Their current from GDP. values may be deflated by taking into account the change in the prices of some 8.50 The concept of value added should relevant basket of goods and services conceptually exclude the counterpart of consumption of fixed capital. The latter, in Gross and net concept effect, is not newly created value, but a 8.46 Gross domestic product (GDP) at market reduction in the value of previously created prices represents the final result of the fixed assets when they are used up in the production activity of resident producer production process. units.

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National Accounts Statistics-Sources & Methods, 2007 Î 91