Gross domestic product

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In economics, the gross domestic product (GDP) is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period.

Table of contents

1 Definition 2 Problems 3 List of total GDP by country (Purchasing Power Parity Method) 4 List of total GDP by country (Current Exchange Rate Method) 5 See also 6 External links

Definition

GDP is defined as the total value of all goods and services produced within that territory during a specified period (most commonly, per year). GDP differs from gross national product in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.

Whereas nominal GDP refers to the total amount of money spent on GDP, real GDP refers to an effort to correct this number for the effects of inflation in order to estimate the sum of the actual quantity of goods and services making up GDP. The former is sometimes called "money GDP," while the latter is termed "constant-price" or "inflation-corrected" GDP -- or "GDP in base-year prices" (where the base year is chosen arbitrarily). See real vs. nominal in economics.

A common equation for GDP is:

GDP = consumption + investment + government expenditures + exports - imports

Aggregate expenditures are calculated in a similar way, although the aggregate expenditures formula does not account for unplanned investment (left over inventory at the end of the reporting cycle) and is more commonly used by economic theorists.

GDPs of different countries may be compared by converting their value in national currency according to either

• current exchange rate method: GDP calculated by exchange rates prevailing on international currency markets
• purchasing power parity method: GDP calculated by purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).

The relative ranking of countries may differ dramatically between the two approaches.

The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets.

The current exchange rate method converts the value of goods and services using global currency exchange rates. This can offer better indications of a country's international purchasing power and relative economic power.

For more information see measures of national income.

Problems

Although GDP is widely used by economists, its value as an indicator has also been the subject of controversy. Criticisms of GDP include:

• Very often different calculations of the GDP are confused among each other. One should especially regard whether it is calculated by purchasing power parity method or current exchange rate method.
• GDP, as a measure of economic size, fails to measure well-being and standard of living accurately.
• GDP doesn't take into account the black economy, non-monetary economy such as bartering, volunteer work, or informal creation of wealth, such as unpaid childcare provided by non-working parents, or production of goods taking place at home. Hence, in countries with major business transactions occurring informally, portions of local economy are not easily registered, resulting in inaccurate or abnormally low GDP figures.
• GDP doesn't measure the sustainability of growth, as a country may achieve a temporary high GDP by over-exploiting natural resources.
• GDP counts work that produces no net gain, and does not account for negative externalities. For example, if a factory pollutes a river, that boosts GDP, and when the taxpayers pay to have it cleaned up, that boosts GDP again. See parable of the broken window.
• GDP also does not tell us the actual distribution of the wealth of a country. Certain groups of people within a country might not be benefiting from its economic wealth. A high GDP could be the result of a case of a few very wealthy people contributing to the economy, while most of its citizens live at or below the subsistence level.

In spite of the problems with GDP as an economic measurement, concrete proposals for a replacement metric have been difficult to generate. A proposed substitute known as the Genuine Progress Indicator (GPI) has been promoted by the Green Party of Canada. How exactly to determine GPI is uncertain, however; one possible formula was devised by Redefining Progress, a San Francisco policy research group.

List of total GDP by country (Purchasing Power Parity Method)

Rank	Entity	PPP total	PPP/capita	Population
		(U.S dollars)	(U.S dollars)	(2003 est.)
	European Union*	11.50 trillion (1012)	25,300	454,900,000
1.	United States	10.40 trillion	37,600	290,343,000
2.	Mainland China	5.70 trillion	4,400	1,287,000,000
3.	Japan	3.55 trillion	28,000	127,215,000
4.	India	2.66 trillion	2,540	1,049,701,000
5.	Germany	2.18 trillion	26,600	82,399,000
6.	France	1.54 trillion	25,700	60,181,000
7.	United Kingdom	1.52 trillion	25,300	60,095,000
8.	Italy	1.44 trillion	25,000	57,998,000
9.	Russia	1.35 trillion	9,300	144,526,000
10.	Brazil	1.34 trillion	7,600	182,032,000
11.	South Korea	931 billion (109)	19,400	48,249,000
12.	Canada	923 billion	29,400	32,207,000
13.	Mexico	900 billion	9,000	104,908,000
14.	Spain	828 billion	20,700	40,218,000
15.	Indonesia	663 billion	3,100	234,894,000
16.	Australia	528 billion	27,000	19,732,000
17.	Turkey	468 billion	7,000	68,110,000
18.	Iran	456 billion	7,000	68,279,000
19.	Netherlands	434 billion	26,900	16,151,000
20.	South Africa	432 billion	10,000	42,769,000
21.	Thailand	429 billion	6,900	70,000,000
22.	Taiwan	406 billion	18,000	22,116,000
23 .	Argentina	391 billion	10,200	38,000,000
24.	Poland	368 billion	9,500	38,000,000

(1) Although the European Union is not formally a nation, it is tied together with a single currency (excluding the UK, Sweden, Denmark, and the 10 new member states) and is considered by some to be a single entity.

The methodology for deriving accurate PPP comparisons remains under constant review, and questions have been raised as to whether the relative size of Mainland China's GDP may be overstated to some extent.

For further data, see List of countries by GDP (PPP)

List of total GDP by country (Current Exchange Rate Method)

Total GDP 2003 (millions of Ranking Economy US dollars). The ranking is different to the list above, which uses PPP method

(If changing numbers, please use the same source for all countries)

• USD 10,958,833 -- European Union
• USD 8,174,681 -- Eurozone

1. USD 10,881,609 -- United States
2. USD 4,326,444 -- Japan
3. USD 2,400,655 -- Germany
4. USD 1,794,858 -- United Kingdom
5. USD 1,747,973 -- France
6. USD 1,465,895 -- Italy
7. USD 1,409,852 -- Mainland China
8. USD 836,100 -- Spain
9. USD 834,390 -- Canada
10. USD 626,080 -- Mexico
11. USD 605,331 -- South Korea
12. USD 598,966 -- India
13. USD 518,382 -- Australia
14. USD 511,556 -- Netherlands
15. USD 492,338 -- Brazil
16. USD 433,491 -- Russian Federation
17. USD 309,465 -- Switzerland
18. USD 302,217 -- Belgium
19. USD 300,795 -- Sweden
20. USD 251,456 -- Austria
21. USD 237,972 -- Turkey
22. USD 221,579 -- Norway
23. USD 212,404 -- Denmark
24. USD 209,563 -- Poland
25. USD 208,311 -- Indonesia

Source: Worldbank (http://www.worldbank.org/data/databytopic/GDP.pdf)

For further data, see list of countries by GDP.

See also

• GDP deflator
• Measures of national income
• Natural gross domestic product
• Uneconomic growth

External links

• What's wrong with the GDP? (http://dieoff.org/page11.htm)
• Complete listing of countries by GDP: Purchasing Power Parity Method (http://aol.countrywatch.com/includes/grank/globrank.asp?TBLS=PPP+Method+Tables&vCOUNTRY=17&TYPE=GRANK) and Current Exchange Rate Method (http://aol.countrywatch.com/includes/grank/gdpnumericcer.asp?TYPE=GRANK&TBL=NUMERICCER&vCOUNTRY=17)

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