Gross value added (GVA) is a measure of economic activity that represents the total value of goods and services produced in an area. It can be calculated using an output, income, or expenditure approach. While GVA indicates economic scale and growth, it does not directly measure well-being as it ignores issues like income inequality, environmental impacts, and how production is used. Gross disposable household income (GDHI) measures amounts available for households to spend or save after taxes and represents a redistributive effect across areas. The regional index of sustainable economic well-being (R-ISEW) attempts to incorporate social and environmental factors into the analysis framework alongside economic indicators.

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

12. 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

13. • 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

14. 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

15. Example 2: Sub-regional GVA per headExample 2: Sub-regional GVA per head
indicesindices

16. Example 3: Sub-regional GVA/head growthExample 3: Sub-regional GVA/head growth
1999-20071999-2007

17. • 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)

18. MethodologyMethodology

19. 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

20. -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

21. 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

22. 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

23. 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

24. 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

25. Components of SW R-ISEWComponents of SW R-ISEW

26. 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?

27. For briefings on theseFor briefings on these
indicators and more…indicators and more…
http://economy.swo.org.uk/http://economy.swo.org.uk/