Three national accounting "systems":

1
Three national accounting "systems"

• System of National Accounts 1993 (SNA 93 rev.
  1953, 1968, 1993, 2008?)
• European System of Accounts 1995 (ESA 95 ? SNA
  93)
• NIPA (Nat'l Income Product Accts, US)
• re OECD, Understanding National Accounts 2006
• http//masetto.sourceoecd.org/vl1134443/cl17/nw
  1/rpsv/una/

2
 The reference manuals

• The standards governing national accounts are
  enshrined in two international reference manuals
  the System of National Accounts 1993 (SNA 93),
  which is recognised globally, and the European
  version of this called the European System of
  Accounts 1995 (ESA 95).
• The global manual (SNA 93) is co-signed by the
  five major international economic organizations
  the United Nations, the International Monetary
  Fund, the OECD, the World Bank and the European
  Commission.
• The European manual is totally compatible with
  the global manual and includes additional useful
  details. It also has a more legally binding
  character because, according to European
  regulations, EU member countries are obligated to
  implement it.
• These manuals have contributed substantially to
  improving the international comparability of
  data, although further progress still has to be
  made in this endeavor .
• The current complete version of SNA 93 is
  available online http//unstats.un.org/unsd/sna19
  93/toctop.asp. A new version is now being
  prepared and due to be published in 2008.

3
Two basic aggregates GDP GNI

• GDP ? Gross Domestic Product
• GDP   ? outputs -  ?(intermediate consumptions)
• GDP  ? (gross values added)
• plus taxes on products
• minus subsidies on products
• GNI ? Gross National Income
• GNI GDP
• primary income (including earnings) received
  from the rest of the world
• primary income (including earnings) paid to
  the rest of the world

4
GDP vs. other aggregates

• Why the bizarre title gross domestic product, or
  GDP? Domestic indicates that the output measured
  is produced within the economic territory of the
  country, or the group of countries, concerned.
  (It is in fact entirely possible to calculate GDP
  for a group of countries, such as that of the
  euro area.) Gross means the consumption of fixed
  capital is not deducted .
• Domestic is also in opposition to national, as
  in GNI or gross national income, which is the
  current title of what was referred to as GNP, or
  gross national product, in previous systems of
  national accounts (GNP is still widely used out
  of habit). GDP measures the total production
  occurring within the territory, while GNI
  measures the total income (excluding capital
  gains and losses) of all economic agents residing
  within the territory (households, firms and
  government institutions).
• For large countries like Germany, the difference
  between GDP and GNI is small (0.4, as seen in
  the following table). But it is larger for a
  small country like Luxembourg, which pays out a
  substantial percentage of its GDP as workers'
  earnings and other so-called primary income to
  the rest of the world. Primary income includes
  interest paid on money invested in Luxembourg.
  Luxembourg also receives substantial primary
  income from abroad, including interest. In the
  final analysis, the difference between GDP and
  GNI is around -11.5 for Luxembourg. Ireland is
  in a comparable situation to Luxembourg, since it
  pays out substantial dividends to the parent
  companies of the American multinational firms
  that have set up there, partly, but not entirely,
  for tax reasons. The result is that Ireland's GNI
  is 16.2 lower than its GDP. While for these
  three countries GNI is lower than GDP, the
  opposite also happens - Switzerland is a case in
  point.

5
GNI vs GDP (in millions of Euro)
Year 2003 Germany Luxembourg Ireland
Gross Domestic Product 2 128 200 23 956 134 786
primary income (including earnings) received from the rest of the world 104 610 52 972 30 296
primary income (including earnings) paid to the rest of the world 118 630 55 722 52 139
Gross National Income 2 114 180 21 206 112 943
Difference between GDP and GNI () 0.7 11.5 16.2
6
The Three Faces of GDP
Figure 5.2
7
5 Measures of National Income
National Income
Personal income
Disposable income
GDP
GNP




10,208
10,203
(NI) 8,218
(PI) 8,724
(DPI) 7,417

• Above are 5 alternative measures of national
  income.

• These range from GDP (broadest) to Disposable
  Income
• Plus GNI ? GNP NDP ? NNP Domestic Income
  DPICSoCL

8

• Two types of comparisons
• in space in time
• Spacial comparisons typically between countries
  (also regional, etc.) here problems of
  purchasing power differences between countries
  (regions) and of exchange rates
• Time comparisons time series (short and long)
  here problems of purchasing power changing
  over time ("price inflation and disinflation")

9
http//web.worldbank.org/WBSITE/EXTERNAL/DATASTATI
STICS/0,,contentMDK20399244menuPK1504474pagePK
64133150piPK64133175theSitePK239419,00.html
downloaded on March 1, 2009

• The Quick Reference tables available here show
  the most recent World Bank estimates of total
  population, gross domestic product (GDP), and
  gross national income (GNI). The tables include a
  ranking of countries both by total size and in
  per capita terms.
• Measuring the size of economies
• There are many ways to measure the size and
  performance of an economy. The relative size of
  economies, reflected in the rankings provided
  hereand changes in rankings from one year to the
  nextdepend on the specific indicator and the
  method used to covert local currencies to U.S.
  dollars.
• World Bank Atlas method
• Purchasing power parities
• Market exchange rates
• Why do rankings change?
• Ranking tables (revised estimates for 2007 posted
  September 2008 October 2008)
• GNI per capita 2007, Atlas method and PPP
• GNI 2007, Atlas method
• GDP 2007
• GDP 2007, PPP
• Population 2007

10
1. World Bank Atlas method

• The World Banks official estimates of the size
  of economies are based on GNI converted to
  current U.S. dollars using the Atlas method.
• GNI takes into account all production in the
  domestic economy (i.e., GDP) plus the net flows
  of factor income (such as rents, profits, and
  labor income) from abroad.
• The Atlas method smoothes exchange rate
  fluctuations by using a three year moving
  average, price-adjusted conversion factor.

11
2. Purchasing power parities

• Purchasing power parity (PPP) conversion factors
  take into account differences in the relative
  prices of goods and servicesparticularly
  non-tradablesand therefore provide a better
  overall measure of the real value of output
  produced by an economy compared to other
  economies.
• PPP GNI is measured in current international
  dollars which, in principal, have the same
  purchasing power as a dollar spent on GNI in the
  U.S. economy. Because PPPs provide a better
  measure of the standard of living of residents of
  an economy, they are the basis for the World
  Banks calculations of poverty rates at 1 and 2
  a day.
• The GNI of developing countries measured in PPP
  terms generally exceeds their GNI measured using
  the Atlas method or using market exchange rates.

12
3. Market exchange rates

• The total GDP data shown here measured in
  current U.S. dollars use annual, market exchange
  rates.
• This means that the values and derived rankings
  are subject to greater volatility due to
  variations in exchange rates.
• Inter-country comparisons based on GDP at market
  prices should, therefore, be treated with
  caution.

13
4. Why do rankings change?

• Year to year changes in the nominal level of
  output or income of an economy are affected by a
  combination of forces real growth, price
  inflation, and exchange rates. Changes in any of
  the three can affect an economys relative size
  and, therefore, its ranking in comparison to
  other economies.
• The economic series shown are measured in nominal
  terms, and so their level from year to year is
  affected by changes in the general price level.
• The Atlas method dampens variability caused by
  fluctuations in exchange rates,
• while the PPP method eliminates the effects of
  differences and changes in relative price levels.
  
• Nominal GDP, perhaps the most familiar measure of
  aggregate economic activity, is most subject to
  price and exchange rate effects.

14
5. Ranking tables (revised estimates for
2007 posted September 2008 October 2008)

• GNI per capita 2007, Atlas method and PPP
• GNI 2007, Atlas method
• GDP 2007
• GDP 2007, PPP
• Population 2007
• Regional tables from the 2008 World Development
  Indicators
• Key indicators regional comparisons for People,
  Environment, Economy, States and Markets, and
  Global Links. 
• Country comparisons East Asia Pacific, Europe
  Central Asia, Latin America Caribbean, Middle
  East North Africa, South Asia, Sub-Saharan
  Africa
• Technical notes
• Country classification

15
Definitions More technical descriptions of the
indicators discussed above are as follows Gross
national income (GNI) in US Atlas method GNI
is the sum of value added by all resident
producers plus any product taxes (less subsidies)
not included in the valuation of output plus net
receipts of primary income (compensation of
employees and property income) from abroad.
Data are in current U.S. dollars, converted
from countries respective national currencies
using the Atlas method, which uses a three-year
average of exchange rates to smooth effects of
transitory exchange rate fluctuations. (GDP GDP
per capita growth rates, however, are calculated
from data in constant prices and national
currency units, not from the Atlas method
estimates). The World Bank favors the Atlas
method for comparing the relative size of
economies and uses it to classify countries in
low, middle and high-income categories and to set
lending eligibilities in order to reduce
short-term fluctuations in country classification.
16
Purchasing power parity gross national income
(PPP GNI)

•  This measure is GNI converted to international
  dollars using purchasing power parity. An
  international dollar has the same purchasing
  power over GNI as a U.S. dollar has in the United
  States.
• The World Bank favors this measure for accurate
  measurement of poverty and well-being in effect,
  it substitutes global prices for local measured
  prices, thereby more accurately reflecting the
  real value of the good or service in question.
• This is especially true of non-tradable services
  (haircuts are the example) which are assumed to
  produce the same level of welfare from one
  country to another, but which vary widely in
  their measured local price.

17
Gross domestic product (GDP) in current prices

• GDP is sum of gross value added, at purchaser
  prices converted at market exchange rates to
  current U.S. dollars, by all resident producers
  in the economy plus any product taxes (less
  subsidies) not included in the valuation of
  output. It is calculated without deducting for
  depreciation of fabricated capital assets or for
  depletion and degradation of natural resources.
  GDP is equal to GNI less net receipts of primary
  income. Value added is the net output of an
  industry after adding up all outputs and
  subtracting intermediate inputs.
• The World Bank does not use this measure for
  classification of countries into income groups or
  poverty levels, as it is subject to distortions
  caused by short-term exchange rate fluctuations,
  policies and interventions. However, GDP measured
  in constant, local currency units provides the
  basis for estimates of overall economic growth.
• For more information please see the notes and
  definitions included in the World Development
  Indicators 2008.

18
Nominal vs Real GDP (etc.)

•  Economists and journalists have acquired the
  unfortunate habit of using the general term
  growth instead of specifying growth in real GDP.
• A typical sentence is "growth is 2" instead of
  "growth in real GDP is 2". This lack of
  precision sometimes results in bizarre
  terminology, such as negative growth, which is an
  oxymoron it would be better to say a decrease of
  GDP in volume.
• Incidentally, national accountants prefer the
  term GDP in volume to real GDP because inflation
  is just as real as growth.

19
 Gross domestic product, in value and in volume,
Germany, in millions of Euro
Source OECD (2006), National Accounts of OECD
Countries Volume I, Main Aggregates, 1993-2004,
2006 Edition, OECD, Paris. StatLink
http//dx.doi.org/10.1787/142154615437
20
Output of the U.S. Economy, 1900-2004
Figure 4.1
21
Volume vs value terms

• The subject of measuring economic variables (and
  SNA/ESA/NIPA categories in particular) in terms
  of their changing volume rather than value (real
  vs. nominal) will be allaborated in the next
  presentation.
• It'll deal with calculating SNA categories in
  constant prices, construction of deflators such
  as Laspeyres, Paasche and Fisher aggregate
  indexes, as well as chain-linked series of them.