1. MEASUREMENT OF ECONOMIC GROWTH
WRITTEN BY
LUCKY NWAKEGO UGBOKO
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT SCIENCES
UNIVERSITY OF CALABAR
CALABAR
JUNE, 2016
TABLE OF CONTENTS
Pages
Table Of Contents i
Abstract ii
1.0 Introduction 1
2.0 Review of Related Literatures 1
2.1 Conceptual and Theoretical Issues 1
3.0 Key Measurement of Economic Growth 2
3.1 Gross Domestic Product (GDP) 2
3.20 Analytical Frameworks 3
3.21 Computing GDP 3
3.3 National Income And GDP 3
3.4 GDP vs. GNP 4
3.5 Growth Rate of GDP 5
3.6 Effect of Inflation on GDP 6

2. 3.7 Real GDP vs. Nominal GDP 6
3.8 GDP Deflator 7
3.9 GDP Per Capita 8
4.0 Nigerian GDP from 1980 to 2014 9
5.0 Conclusion and Recommendations 10
References 11
Abstract
This paper examines the measurement of economic growth in Nigeria as measured by
real gross domestic product (RGDP).
The author defined GDP and explained its concepts as the key national economic
growth measure. Other complex related matrixes associated with GDP were
simplified in this paper to enable easy comprehension and appreciation of the concept
of economic growth measurement.
Time series data obtained from IMF for a period of 34 years, that is, 1980 to 2014 was
used. The result shows that there has not been any significant economic growth in
Nigeria as measured using GDP for the period under review.
The paper recommended that there is need for government to consciously develop the
business environment by provision of necessary infrastructure, which will lower the
cost of doing business in Nigeria. Government is also required to formulate sound
monetary and fiscal policies to mitigate the negative effects of inflation on economic

3. growth and also to create an enabling industrial environment to minimised industrial
actions, which hampers productivity if economic growth is to be achieved.
Keywords: Economic Growth, National Income, Gross Domestic Product (GDP),
Gross National Product (GNP), Growth Rate of GDP, Real GDP, Nominal GDP,
GDP Deflator, GDP Per Capita
1. Introduction
Economic growth is a fundamental requisite to economic development. This informs
why in Nigeria, economic growth continuously dominates the main policy thrust of
government’s development objectives.
Essentially, economic growth is associated with policies aimed at transforming and
restructuring the real economic sectors. Nevertheless, the lack of sufficient domestic
resources, savings and investment to support and sustained the sectors are major
impediments to economic development in most developing countries because of the
gap between savings and investments (Imimole and Imoughele, 2012).
Savings provides developing countries (including Nigeria) with the much-needed
capital for investment, which improves economic growth. Increase in savings leads to
increase in capital formation and production activities that will lead to employment
creation and reduce external borrowing of government. Low domestic saving brings

4. about low-growth levels as suggested by Harrod Domar model, savings is an
important factor for economic growth (Essien, 2002).
2.0 Review of Related Literatures
2.1 Conceptual and Theoretical Issues
According to Aigbokhan (1995), Economic growth means an increase in the average
rate of output produce per person usually measured on a per annum basis. It is also the
rate of change in national output or income in a given period.
Economic growth is the increase of per capita gross domestic product (GDP) or other
measure of aggregate income. It is often measured as the rate of change in real GDP.
Economic growth refers only to the quantity of goods and services produced. Thus
Economic growth is an increase in real gross domestic product (GDP). That is, gross
domestic product adjusted for inflation. The growth can either be positive or negative.
Negative growth can be referred to as a shrinking economy, which is characterised
with economic recession and depression.
Ullah and Rauf (2013) noted that whenever there is increase in real GDP of a country
it boosts the overall output resulting in economic growth. The study of economic
growth is important to a nation as it helps to analyse the increase/decrease of the
incomes of the society, the effects of unemployment and productivity as well as the
deliveries of public services.
3.0 Key Measurement of Economic Growth
3.1 Gross Domestic Product (GDP)
“The Gross Domestic Product measures the value of economic activity within a
country. Strictly defined, GDP is the sum of the market values, or prices, of all final
goods and services produced in an economy during a period of time.

5. There are, however, three important distinctions within this seemingly simple
definition:
i). GDP is a number that expresses the worth of the output of a country in local
currency.
ii). GDP tries to capture all final goods and services as long as they are produced
within the country, thereby assuring that the final monetary value of everything that is
created in a country is represented in the GDP.
iii). GDP is calculated for a specific period of time, usually a year or a quarter of a
year.
Taken together, these three aspects of GDP calculation provide a standard basis for
the comparison of GDP across both time and distinct national economies.” (Spark
Notes, 2014)
3.20 Analytical Frameworks
3.21 Computing GDP
Having dealt with the definition of GDP, it is pertinent to understand how to compute
it. We know that in an economy, GDP is the monetary value of all final goods and
services produced. For example, let’s say Country Z only produces Cocoa and Gold.
Year
Price of
Cocoa
Quantity
of Cocoa
Price of
Gold
Quantity
of Gold
1 N1 5 N6 5
2 N2 10 N6 7
3 N3 10 N6 9
Figure 1: Goods and Services Produced in Country Z
In year 1 they produce 5 tons of Cocoa that are worth N1 each and 5 pounds of Gold
that are worth N6 each. The GDP for the country in this year equals (quantity of

6. Cocoa X price of Cocoa) + (quantity of Gold X price of Gold) or (5 X N1) + (5 X N6)
= N35.
As more goods and services are produced, the equation lengthens. In general, GDP =
(quantity of A X price of A) + (quantity of B X price of B) + (quantity of whatever X
price of whatever) for every good and service produced within the country.
3.3 National Income And GDP
In the real world, the market values of many goods and services must be calculated to
determine GDP. While the total output of GDP is important, the breakdown of this
output into the large structures of the economy can often be just as important. In
general, macroeconomists use a standard set of categories to breakdown an economy
into its major constituent parts; in this instance, GDP is the sum of consumer
spending, investment, government purchases, and net exports, as represented by the
equation:
Y = C + I + G + NX
Because in this equation Y captures every segment of the national economy, Y
represents both GDP and the national income. This is because when money changes
hands, it is expenditure for one party and income for the other, and Y, capturing all
these values, thus represents the net of the entire economy.
Let’s briefly examine each of the components of GDP.
Consumer spending, C, is the sum of expenditures by households on durable goods,
nondurable goods, and services. Examples include clothing, food, and health care.
Investment, I both local and foreign direct investment (fdi), is the sum of expenditures
on capital equipment, inventories, and structures. Examples include machinery,
unsold products, and housing.

7. Government spending, G, is the sum of expenditures by all government bodies on
goods and services. Examples include naval ships and salaries to government
employees.
Net exports, NX, equal the difference between spending on domestic goods by
foreigners and spending on foreign goods by domestic residents. In other words, net
exports describe the difference between exports and imports.
3.4 GDP vs. GNP
GDP is just one way of measuring the total output of an economy. Gross National
Product, or GNP, is another method. GDP, as said earlier, is the sum value of all
goods and services produced within a country. GNP narrows this definition a bit: it is
the sum value of all goods and services produced by permanent residents of a
country regardless of their location. The important distinction between GDP and GNP
rests on differences in counting production by foreigners in a country and by nationals
outside of a country. For the GDP of a particular country, production by foreigners
within that country is counted and production by nationals outside of that country is
not counted. For GNP, production by foreigners within a particular country is not
counted and production by nationals outside of that country is counted. Thus, while
GDP is the value of goods and services produced within a country, GNP is the value
of goods and services produced by citizens of a country.
For example, in Country Z, represented in, Cocoa are produced by nationals and Gold
are produced by foreigners. Using figure 1, GDP for Country B in year 1 is (5 X N1)
+ (5 X N6) = N35. GNP for country Z is (5 X N1) = N5, since the $30 from Gold is
added to the GNP of the foreigners’ country of origin.
The distinction between GDP and GNP is theoretically important, but not often
practically consequential. Since the majority of production within a country is by

8. nationals within that country, GDP and GNP are usually very close together. In
general, macroeconomists rely on GDP as the measure of a country’s total output.
3.5 Growth Rate of GDP
GDP is an excellent index with which to compare the economy at two points in time.
That comparison can then be used formulate the growth rate of total output within a
nation.
In order to calculate the GDP growth rate, subtract 1 from the value received by
dividing the GDP for the second year by the GDP for the first year.
GDP growth rate = [(GDP2)/(GDP1] – 1
For example, using, in year 1 Country Z produced 5 tons of Cocoa worth N1 each and
5 pounds of Gold worth N6 each. In year 2 Country Z produced 10 tons of Cocoa
worth N1 each and 7 pounds of Gold worth N6 each.
In this case the GDP growth rate from year 1 to year 2 would be:
[(10 X N1) + (7 X N6)] / [(5 X N1) + (5 X N6)] – 1 = 49%
3.6 Effect of Inflation on GDP
There is an obvious problem with this method of computing growth in total output:
both increases in the price of goods produced and increases in the quantity of goods
produced lead to increases in GDP. From the GDP growth rate it is therefore difficult
to determine if it is the amount of output that is changing or if it is the price of output
undergoing change.
This limitation means that an increase in GDP does not necessarily imply that an
economy is growing. If, for example, Country Z produced in one year 5 tons of cocoa
each worth N1 and 5 pounds of gold each worth N6, then the GDP would be N35. If
in the next year the price of bananas jumps to N2 and the quantities produced remain

9. the same, then the GDP of Country Z would be N40. While the market value of the
goods and services produced by Country Z increased, the amount of goods and
services produced did not. The problem of Inflation can make comparison of GDP
from one year to the next difficult as changes in GDP are not necessarily due to
economic growth.
3.7 Real GDP vs. Nominal GDP
In order to deal with the ambiguity inherent in the growth rate of GDP,
macroeconomists have created two different types of GDP, nominal GDP and real
GDP.
Nominal GDP is the sum value of all produced goods and services within a country at
current prices. This is the GDP that is explained in the sections above. Nominal GDP
is more useful than real GDP when comparing sheer output, rather than the value of
output, over time. Whereas Real GDP is the sum value of all produced goods and
services produced within a country at constant prices. The prices used in the
computation of real GDP are gleaned from a specified base year. By keeping the
prices constant in the computation of real GDP, it is possible to compare the
economic growth from one year to the next in terms of production of goods and
services rather than the market value of these goods and services. In this way, real
GDP frees year-to-year comparisons of output from the effects of changes in the price
level (inflation).
The first step to calculating real GDP is choosing a base year. For example, to
calculate the real GDP for in year 3 using year 1 as the base year, use the GDP
equation with year 3 quantities and year 1 prices. In this case, real GDP is (10 X N1)
+ (9 X N6) = N64. For comparison, the nominal GDP in year 3 is (10 X N2) + (9 X

10. N6) = N74. Because the price of Cocoa increased from year 1 to year 3, the nominal
GDP increased more than the real GDP over this time period.
3.8 GDP Deflator
When comparing GDP between years, nominal GDP and real GDP capture different
elements of the change. Nominal GDP captures both changes in quantity and changes
in prices. Real GDP, on the other hand, captures only changes in quantity and is
insensitive to the price level. Because of this difference, after computing nominal
GDP and real GDP a third useful statistic can be computed.
The GDP deflator is the ratio of nominal GDP to real GDP for a given year minus 1.
In effect, the GDP deflator illustrates how much of the change in the GDP from a base
year is reliant on changes in the price level.
For example, let’s calculate, using, the GDP deflator for Country Z in year 3, using
year 1 as the base year. In order to find the GDP deflator, we first must determine
both nominal GDP and real GDP in year 3.
Nominal GDP in year 3 = (10 X N2) + (9 X N6) = N74
Real GDP in year 3 (with year 1 as base year) = (10 X N1) + (9 X N6) = N64
The ratio of nominal GDP to real GDP is (N74 / N64) – 1 = 16%.
This means that the price level rose 16% from year 1, the base year, to year 3, the
comparison year.
Rearranging the terms in the equation for the GDP deflator allows for the calculation
of nominal GDP by multiplying real GDP and the GDP deflator. This equation
demonstrates the unique information shown by each of these measures of output. Real
GDP captures changes in quantities. The GDP deflator captures changes in the price
level. Nominal GDP captures both changes in prices and changes in quantities. By
using nominal GDP, real GDP, and the GDP deflator you can look at a change in

11. GDP and break it down into its component change in price level and change in
quantities produced.
3.9 GDP Per Capita
GDP is the single most useful number when describing the size and growth of a
country’s economy. An important thing to consider, though, is how GDP is connected
with standard of living. After all, to the citizens of a country, the economy itself is
less important than the standard of living that it provides.
GDP per capita, the GDP divided by the size of the population, gives the amount of
GDP that each individual gets, on average, and thereby provides an excellent measure
of standard of living within an economy. Because GDP is equal to national income,
the value of GDP per capita is therefore the income of a representative individual.
This number is connected directly to standard of living. In general, the higher GDP
per capita in a country, the higher the standard of living. GDP per capita is a more
useful measure than GDP for determining standard of living because of differences in
population across countries. If a country has a large GDP and a very large population,
each person in the country may have a low income and thus may live in poor
conditions. On the other hand, a country may have a moderate GDP but a very small
population and thus a high individual income. Using the GDP per capita measure to
compare standard of living across countries avoids the problem of division of GDP
among the inhabitants of a country.
4.0 Nigerian GDP from 1980 to 2014
Year
Gross domestic
product, constant
prices
Year
Gross domestic
product, constant
prices
Year
Gross domestic
product, constant
prices
Year
Gross domestic
product, constant
prices
1980 2.872
1989 6.467 1999 2.8 2010 9.969
1981 20.838
1990 12.766 2000 7.701 2011 4.887
1982 -1.053
1991 2.206 2001 7.035 2012 4.279

12. 1983 -5.05
1992 3.209 2002 6.898 2013 5.394
1984 -2.022
1993 4.835 2003 11.889 2014 6.31
1985 8.323
1994 3.552 2004 8.791
1986 -8.754
1995 2.236 2005 8.677
1987 -10.752
1996 7.606 2006 8.327
1987 -10.752
2007 9.061
1988 7.543
1997 5.298 2008 8.014
1988 7.543
1998 5.15 2009 8.971
Source: International Monetary Fund, World Economic Outlook Database, April
2015
5.0 Conclusion and Recommendations
In their work on Macroeconomic Determinants of Economic Growth in
Nigeria: A Co-integration Approach, Ismaila and Imhoughele (2015) have this
conclusion to make “there is need for government to consciously develop the business
environment by provision of necessary infrastructure, which will lower the cost of
doing business in Nigeria”, this will encourage investment both locally and foreign
direct investment (FDI) and hence productivity.

13. They further advised government to formulate tight monetary and fiscal policies in
order to fight inflation in the Nigerian economy, “since inflation have negative
influence on investment and Nigeria economic growth”.
Industrial actions have been rampant in recent times taking its toll on national outputs
(productivity), government must ensure a conducive industrial environment to enable
non-stop production.
Finally, government should encourage stability in macroeconomic variables and
employ such growth oriented and stabilization policies especially at macro level,
which will induce economic growth and development.
References
Aigbokhan, B.E. (1995). Macroeconomic: Theory Policy and Evidence. Benin City:
Idenijies Publishers.
Essien, E.A. (2002). Nigeria’s Economic Growth: Performance and Determinant.
CBN Economic and Financial Review, 40.(3).
Imimole, B. and Imuoghele, L.E (2012). Impact of Public Debt on an Emerging
Economy: Evidence from Nigeria (1980 – 2009). International Journal of Innovative
Research and Development. 1(8).
Ismaila, Mohammed & Imoughele, Lawrence Ehikioya. (2015). Macroeconomic
Determinants of Economic Growth in Nigeria: A Co-integration Approach.
International Journal of Academic Research in Economics and Management Sciences
(2015), 4 (1): 2226-3624
Spark Notes (2014). Measuring the Economy – Gross Domestic Product (GDP)
(online)Available:http://www.sparknotes.com/economics/macro/measuring1/section1.
html (April 8, 2014)
Ullah, F & Rauf, A. (2013). Impacts of Macroeconomic Variables on Economic
Growth: A Panel Data Analysis of Selected Asian Countries. GE-International Journal
of Engineering, Research available on line at www.gejournal.net