Gross Domestic Product
- The most common measure of economic growth is a country’s Gross Domestic Product (GDP). This is the total value of goods and services produced within the country in a year. This includes the value of goods and services produced within one’s borders by overseas companies (such as Samsung in Hong Kong), but excludes the value of goods and services produced by local companies operating overseas (e.g. Hong Kong firms such as Bossini operating in Indonesia).
- This definition is very important.
- Value is not a measure of quantity as amount is, rather it is a measurement of both quality and quantity.
- Multinational firms owned by Hong Kong people but which operate elsewhere do not add to Hong Kong’s GDP.
- USA has a high GDP:
- They could raise this if they did not allow firms to globalize.
- UK has a low GDP:
- Most of its firms operate elsewhere.
- GDP rises are not necessarily good things:
- The rise may just cause an increase in income disparity.
- GNP includes the value of goods and services produced by multinational firms owned by people from one’s own country but which do not necessarily operate within the borders of said country. But it excludes the value of goods and services produced by foreign companies in one’s own country.
- It is not a measure of what a country is producing.
- Local factories have local workers and even if most of the revenue is going elsewhere those goods are still being produced locally and not by foreigners.
- All governments collect GDP data to check on the economy’s progress since all governments have goals and objectives:
- This is because it is important for a government to determine:
- Whether their economic policies are good.
- And whether or not the economy is in trouble and needs rescuing.
- This is because it is important for a government to determine:
- It makes it easier for investors, NGOs (Non-Government Organizations), and institutions to compare data.
- Most countries use US$ PPP (Purchasing Power Parity) to make it easier to analyze:
- PPP means the figure has been adjusted to the purchasing power of another currency:
- 1USD = 7.79640HKD
- For instance, China’s GDP would originally have been measured in RMB. When PPP is applied then it is adjusted to an equivalent amount of USD. In reality the value is not changed only the unit. This makes different GDP values easier to compare.
- S is the exchange rate.
- P1 is the price of item x in currency 1.
- P2 is the price of item x in currency 2.
- PPP means the figure has been adjusted to the purchasing power of another currency:
- This means that an amount of money has been adjusted to how much it can buy (how much it is worth) of another currency, usually the US dollar.
- Where an amount of money has the same value even when it is converted into another currency.
- This makes comparing values such as GDP much easier internationally.
- GDP per head or GDP per person = Total GDP / Total Population.
- This is a very good indicator of standard of living and the average wealth of people within a nation:
- However it does not tell us about the wealth distribution within a nation.
- It also does not tell us how much a nation produces as a whole:
- Luxembourg has a higher GDP per capita than China:
- But it does not produce nearly as much as China does.
- They have a higher GDP per capita because they have a much smaller populace (half a million in Luxembourg compared to the 1.3 billion people in China).
- Luxembourg has a higher GDP per capita than China:
- Some countries cannot generate enough GDP because:
- Failure of government policies:
- This is the lack of enterprise:
- Speculation.
- This is the lack of enterprise:
- Failure of government policies:
- Brazil has a lot of iron ore (it has a lot of natural resources) it also has a lot of coal as well as a large labor force.
- GDP is growing in Hong Kong because of Chinese tourists.
- The GDP for the first two quarters is usually better since we usually produce more at the start of the year than at the end.
- Before 1999 was the Asian financial crisis and the handover:
- The handover resulted in some companies moving:
- Swire moved to Singapore resulting in many firms also moving.
- Many of these firms have since moved back.
- The handover resulted in some companies moving:
- Subsidies come more than once:
- Subsidies to hire more workers.
- Grants only come once and are given for specific purposes:
- Grants to purchase new computers.
- Sweat shops are places where workers are forced to work long hours for very little pay and in very bad conditions:
- This is a form of labor exploitation and may occur during times of boom in LEDCs when aggregate demand is high and so firms require more labor.
- If the majority of a nation’s natural resources are owned by foreign countries then the revenue generated through the commercialization of these resources is mainly taken elsewhere:
- Therefore the generation of internal investment will be low.