GDP can be calculated using three approaches: the production, expenditure, and income approaches. The production approach measures GDP as the total value added of all final goods and services produced domestically. It is calculated as output minus intermediate consumption plus taxes and minus subsidies. The expenditure approach measures GDP as the total final expenditures on domestically produced goods and services, including household consumption, government spending, investment and net exports. The income approach measures GDP as the sum of all primary incomes distributed by domestic producers as compensation to employees, taxes on production and income, and gross operating surplus.

1. GDP Estimates Sources and
Methods
By: Zahir Mohamed Omar

2. Outline presentation
• GDP Definitions
• GDP Methods
• GDP Production components
• GDP Expenditure components
• GDP Income components

3. Definitions of GDP
• Basically, GDP derives from the concept of value added. Gross value
added is the difference between output and intermediate consumption.
GDP is the sum of gross value added of all resident producer units plus
taxes on products, less subsidies on products, that is not included in the
valuation of output.
• Next, GDP is also equal to the sum of the final uses of goods and services
(all uses except intermediate consumption) measured at purchasers’
prices, less the value of imports of goods and services.
• Finally, GDP is also equal to the sum of primary incomes distributed by
resident producer units.

4. GDP Methods
• GDP Production Approach
• GDP Expenditure Approach
• GDP Income Approach

5. GDP Production approach

6. GDP Production Components
• Output
• Intermediate consumption
• Taxes less subsidies on production

7. Definition of Output
• Output is the value of the goods and services which are produced by an
establishment in the economy that become available for use outside
that establishment.
Exclude from output
• Losses or wastage in production and distribution will not be counted as
output.
• The output of goods and services is normally recorded when their
production is completed
• Non-market output, which is provided free or sold at economically
insignificant prices,

8. Definition of Intermediate Consumption
Intermediate consumption includes goods and services which are entirely used
up by producers in the course of production to produce output of goods and
services during the accounting period.
Durable goods which may be classified as capital goods since they are used as
the tools of production over a number of years (saws, spades, knives, axes,
hammers and screwdrivers etc.) may be included in intermediate consumption
if their prices are below a certain low value.
• Intermediate consumption excludes other production costs, such as labour
cost, financial costs and production taxes.
• The labour and financial costs and production taxes are costs to business
firms but are treated in SNA as incomes generated for the economy in the
production process.

9. Definitions Other taxes less subsidies on production
Other taxes less subsidies on production: Other taxes less subsidies on
production are taxes payable by employers to carry out production,
irrespective of sales or profitability. They may be payable as license fees
or as taxes on the ownership or use of land, buildings or other assets
used in production or on the labour employed or on the compensation
of employees paid. They are not taxes paid on values of sales or
produced outputs, which are called taxes on products.

10. GDP Production formula
Production approach: GDP can be calculated by adding taxes less
subsidies on products to the total value added, which is derived by
subtracting intermediate consumption from output in equation.
Formula:-
GDP = output + taxes – subsidies – intermediate consumption….
 GVA= Output- Intermediate consumption
GDP = gross value added + taxes – subsidies

11. Production approach sources
• Income statements from large enterprises− such as telecoms, banks,
parastatals, utilities
• Business surveys − at least for a benchmark
• Household surveys − benchmark for consumer services, housing,
output for own consumption
• Administrative data − such as tax data
• The government sector
− central government accounts
− income statements from municipalities

12. Expenditure Approach

13. GDP expenditure components
• Final consumption
• Gross capital formation
• Export & import

14. Definition of final consumption
• Final consumption includes goods and services which are used by
households or the community to satisfy their individual wants and social
needs. Thus, final consumption is broken down into:
a) Final consumption expenditure of households;
b) Final consumption expenditure of general government;
c) Final consumption expenditure of non-profit institutions serving
households.
• For households, all consumed goods, whether durable (cars, refrigerators,
air-conditioners etc.) or non-durable (food, clothes), are part of final
consumption, with the exception of purchases for own-construction or
improvements of residential housing, which are treated as part of gross
capital formation.

15. Conti….
Included in the final consumption expenditure of general government
and non-profit institutions serving households are:
a) Non-market output other than own-account capital formation, which
is measured by production costs less incidental sales of government
output;
b) Expenditure on market goods and services that are supplied without
transformation and free of charge to households (referred to by SNA as
social transfers in kind).

16. Definition of Gross Capital Formation
• Gross capital formation in SNA is the same as the concept of investment in capital
goods used by economists. It includes only produced capital goods (machinery,
buildings, roads, artistic originals etc.) and improvements to non-produced assets.
Gross capital formation measures the additions to the capital stock of buildings,
equipment and inventories, i.e., the additions to the capacity to produce more
goods and income in the future.
• Non-produced assets, such as land, natural resources and patented entities, may
also be used as capital in an establishment or enterprise or the whole economy but
are not part of the gross capital formation in SNA.
• Gross capital formation, which is a major factor in changing the values of non-
financial assets in the economy, includes
a) Gross fixed capital formation;
b) Changes in inventories;
c) Acquisition less disposals of valuables (such as jewelry and works of art).

17. Cont.…
• Gross fixed capital formation includes:
• a) Acquisition less disposal of new or existing produced assets, such as
dwellings, other building structures, machinery and equipment, cultivated
assets (e.g., trees and livestock), mineral exploration, computer software,
entertainment, literary or artistic originals, and other intangible fixed
assets;
• b) Major improvements to produced and non-produced, non-financial
assets that extend the lives of assets (e.g. reclamation of land from sea,
clearance of forests, rock etc., draining of marches or irrigation of forests,
and prevention of flooding or erosion);
• c) Acquisition can be in terms of purchase, own-account production, barter,
capital transfer in kind, financial leasing, natural growth of cultivated assets
and major repairs of produced assets;

18. Cont.…
Changes in inventories
Inventories include:
a) Materials and supplies; produced but not used
b) Work-in-progress (growing crops, maturing trees and livestock,
uncompleted structures, uncompleted other fixed assets, partially
completed film productions and software);
c) Finished goods; but not used
d) Goods for resale. Not yet sold

19. Definition of Export and Import of Goods and
Services
• Exports and imports between the domestic economy and the rest of
the world are transactions between residents and non-residents of an
economic territory.
• A transaction of goods and services (sales, barter, and gifts) from
residents to non-residents is an export and from non-residents to
residents is an import.

20. GDP expenditure formula
Gross domestic product can also be viewed as the value of all goods
and services available for different domestic final uses or for exports.
Formula:-
GDP = final consumption + gross capital formation + exports –
imports

21. GDP expenditure approach sources
• Household income and expenditure surveys
• Administrative data
• Production data
• Foreign trade data
• Government accounts
• Censuses and surveys of enterprises

22. GDP income Approach

23. GDP income components
• Compensation of employee
• Taxes less subsidies
• Gross operating surplus
• Mixed income

24. Definition of compensation of employees
Compensation of employees: Compensation of employees is the total
remuneration in cash or in kind payable by employers to employees for
the work done. Direct social transfers from employers to their
employees or retired employees and their family, such as payments for
sickness, educational grants.

25. Other taxes less subsidies on production
Other taxes less subsidies on production are taxes payable by
employers to carry out production, irrespective of sales or profitability.
They may be payable as license fees or as taxes on the ownership or
use of land, buildings or other assets used in production or on the
labour employed or on the compensation of employees paid. They are
not taxes paid on values of sales or produced outputs, which are called
taxes on products;

26. Gross operating surplus & mixed income
Gross operating surplus
Gross operating surplus: Gross operating surplus is the residual obtained
by deducting the taxes and capital formation components from value
added. Thus, gross operating surplus can be estimate Depreciation and
depletion and Bad debt allowance.
Mixed income
Mixed income: mixed income is the mixture of compensation of
employees and operating surplus applied to the households that carry
out economic activities but do not keep business accounts

27. GDP Income Formula
• The production process creates incomes for not only the owners of
the inputs used in production but also for owners of capital and for
the government. The value of those incomes is equal to gross
domestic product. Hence, GDP can also be calculated as the sum of
compensation of employees, taxes less subsidies and gross operating
surplus/mixed income
GDP = compensation of employees + taxes - subsidies + gross
operating surplus / mixed income

28. END