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Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
Economics Demystified: All You Wanted to Know About GVA
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Economics Demystified: All You Wanted to Know About GVA

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Steve Bashford, South West RDA/SWO Economy Module, takes us through an overview of Gross Value Added (GVA) and what it means to you.

Steve Bashford, South West RDA/SWO Economy Module, takes us through an overview of Gross Value Added (GVA) and what it means to you.

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  • 1. MEASURING ECONOMICMEASURING ECONOMIC PERFORMANCE:PERFORMANCE: All you wanted to knowAll you wanted to know about GVAabout GVA Stephen BashfordStephen Bashford
  • 2. StructureStructure • Gross Value Added (GVA) • Complementary measures – Gross Disposable Household Income (GDHI) – Regional Index of Sustainable Economic Well- being (R-ISEW) • See regional and sub-regional indicators http://economy.swo.org.uk/publications/
  • 3. Gross Valued Added (GVA):Gross Valued Added (GVA): Total value of goods and services produced through economic activity in any particular period • GVA = GDP - Taxes + Subsidies (GDP is at market prices) • Taxes and subsidies not part of the value added in production • GDP = national; GVA = regional • GVA = Output = Income = Expenditure…
  • 4. (1) OUTPUT (2) INCOME (3) EXPENDITURE
  • 5. (1) Output (production) approach(1) Output (production) approach Farmer’s value addedFarmer Value of wheat Miller’s value added Miller Value of flour Baker’s value added Baker Wholesale value of bread Grocer’s value added Grocer Retail value of bread Final expenditure on bread 0 10p 20p 30p 40p GVA Farmer’s value added Miller’s value added Baker’s value added Grocer’s value added Intermediate expenditure Final expenditure Value added Note that the sum of all value added is also equal to final expenditure. 0 10p 20p 30p 40p
  • 6. (2) Income approach(2) Income approach • Income of all those involved in production process • Includes: – Compensation of employees (wages and salaries) ~60% – Operating surplus (profit, interest…etc) ~30% – Mixed incomes (sole traders and self-employed) ~10% • Excludes: – Transfer payments (pensions and social security); Direct taxes; ‘Shadow Economy’
  • 7. (3) Expenditure approach(3) Expenditure approach  The value of expenditure on goods and services C + G + I + X – M C = Consumer expenditure on goods & services G = Government expenditure I = Investment in buildings and machinery X-M = Exports minus imports
  • 8. What is the GVA for Company A?What is the GVA for Company A? Company A Sales £100 Cost of Sales £30 Wages £40 Expenses £20 £90 Net profit £10 GVA for Company A £50 Sales - CoS - Expenses £50 Wages + net profit £50 Other calculations: Employment based: Net additional employment x GVA per FTE for sector Turnover based: Turnover x Turnover :GVA ratio for sector
  • 9. Nominal vs. Real GVANominal vs. Real GVA • Nominal GVA in current prices with no allowances made for inflation • Real GVA in constant prices i.e. a fixed year (2007) GVA deflator Real GVA Real GVA 2007 2008 Nominal GVA
  • 10. ProductivityProductivity How efficiently factors of production (land, labour and capital) are used in the production process • GVA per job or GVA per hour • GVA per head as a proxy (from ONS) –Resident vs. workplace: commuting effects –Non-active population factor
  • 11. expansion recession Potential output Actual output Trend output In The Challenge of Affluence (2006), economist Avner Offer says that the various forms of national accounts were not designed to measure welfare but cyclical changes in levels of economic activity: Time Output
  • 12. • Indicator of scale and growth • Comparisons across time & place (but time lags) • Established methodology • Limitations are well documented – Does not directly measure well-being; ‘Threshold hypothesis’ – Distribution; Income inequality – Ignores externalities e.g. environmental – Includes ‘bads’ i.e. more expenditure on health care due to stress – To be considered alongside other economic, environmental and social indicators GVA: What it does and does not doGVA: What it does and does not do
  • 13. 0% 20% 40% 60% 80% 100% NE YH WM NW EM SW E ENG SE L Agriculture Production Construction Distribution, transport and comms Business services Public admin Example 1: GVA composition 2008Example 1: GVA composition 2008
  • 14. Example 2: Sub-regional GVA per headExample 2: Sub-regional GVA per head indicesindices
  • 15. Example 3: Sub-regional GVA/head growthExample 3: Sub-regional GVA/head growth 1999-20071999-2007
  • 16. • The amount that households have to spend or save after deduction of income and property taxes, National Insurance and social contributions …the maximum amount that a household can (or has available at its disposal to) consume without reducing its real worth Gross Disposable Household IncomeGross Disposable Household Income (GDHI)(GDHI)
  • 17. MethodologyMethodology
  • 18. 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 £ GVA per head GDHI per head SW GVA versus GDHISW GVA versus GDHI
  • 19. -60,000 -40,000 -20,000 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 £million Operating Surplus/Mixed Income Compensation of employees Property income, received Social benefits Other current transfers Current taxes on income, wealth etc Social contributions Other current transfers, uses Property income, paid Components of SW GDHIComponents of SW GDHI
  • 20. 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Plymouth Torbay Cornwall&IoS Bristol DevonCC Somerset Swindon B&NES,NSomerset&SGlos B&P Wiltshire Dorset Gloucestershire £ GVA per head GDHI per head But how is this affected by commuting? Again, work-based vs. resident-based. Redistributive effectRedistributive effect
  • 21. Regional Index of Sustainable EconomicRegional Index of Sustainable Economic Well-being (R-ISEW)Well-being (R-ISEW) • Monetises social and environmental issues bringing them into the same analytical framework as economic indicators • First ISEW by Cobb & Daly in 1989 • First UK ISEW by nef and Professor Tim Jackson, University of Surrey in 1994 •First R-ISEWs for all regions supported by RDAs, calculated in 2007
  • 22. R-ISEW = Personal consumer expenditure - adjustment for income inequality + public expenditures (non-defensive) + value of domestic labour & volunteering +/- economic adjustments (net international position, net capital growth, consumer durables) - defensive private expenditures - costs of environmental degradation - depreciation of natural capital MethodologyMethodology
  • 23. GVA per head versus R-ISEW per headGVA per head versus R-ISEW per head 5,000 7,000 9,000 11,000 13,000 15,000 17,000 19,000 21,000 23,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 £ R-ISEW per head England GVA per head England R-ISEW per head South West GVA per head South West Capital growth, resource depletion, commuting
  • 24. Components of SW R-ISEWComponents of SW R-ISEW
  • 25. ConclusionsConclusions • Must fully understand the benefits and limitations of indicators. • GVA measures the total value of goods and services produced through economic activity. • ‘Circular flow’: GVA = Output = Income = Expenditure • Productivity describes how efficiently an economy is using its resources. • GDHI measures how much consumers have available to spend in the economy and reveals a ‘redistributive effect’. • The R-ISEW attempts to bring a number of indicators into a single framework. An effective model?
  • 26. For briefings on theseFor briefings on these indicators and more…indicators and more… http://economy.swo.org.uk/http://economy.swo.org.uk/

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