Measurement
International standards
The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives of the International Monetary Fund, European Union, Organization for Economic Co-operation and Development, United Nations and World Bank. The publication is normally referred to as SNA93, to distinguish it from the previous edition published in 1968 (called SNA68).
SNA93 sets out a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.
National measurement
Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required (especially information on expenditure and production by governments).
GDP can measure spending on all goods and services. GDP can also measure all income earned.
Interest rates
Net interest expense is a transfer payment in all sectors except the financial sector. Net interest expenses in the financial sector is seen as production and value added and is added to GDP
Cross-border comparison
The level of GDP in different countries may be compared by converting their value in national currency according to either
current currency exchange rate: GDP calculated by exchange rates prevailing on international currency markets
purchasing power parity exchange rate: GDP calculated by purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).
The relative ranking of countries may differ dramatically between the two approaches.
The current exchange rate method converts the value of goods and services using global currency exchange rates. This can offer better indications of a country's international purchasing power and relative economic strength. For instance, if 10% of GDP is being spent on buying hi-tech foreign arms, the number of weapons purchased is entirely governed by current exchange rates, since arms are a traded product bought on the international market (there is no meaningful 'local' price distinct from the international price for high technology goods).
The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets. (For example, India ranks 13th by GDP but 4th by PPP.)The PPP method of GDP conversion is most relevant to non-traded goods and services.
There is a clear pattern of the purchasing power parity method decreasing the disparity in GDP between high and low income (GDP) countries, as compared to the current exchange rate method. This finding is called the Penn effect.
For more information see measures of national income.
The international standard for measuring GDP is contained in the book System of National Accounts (1993), which was prepared by representatives of the International Monetary Fund, European Union, Organization for Economic Co-operation and Development, United Nations and World Bank. The publication is normally referred to as SNA93, to distinguish it from the previous edition published in 1968 (called SNA68).
SNA93 sets out a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.
National measurement
Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required (especially information on expenditure and production by governments).
GDP can measure spending on all goods and services. GDP can also measure all income earned.
Interest rates
Net interest expense is a transfer payment in all sectors except the financial sector. Net interest expenses in the financial sector is seen as production and value added and is added to GDP
Cross-border comparison
The level of GDP in different countries may be compared by converting their value in national currency according to either
current currency exchange rate: GDP calculated by exchange rates prevailing on international currency markets
purchasing power parity exchange rate: GDP calculated by purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).
The relative ranking of countries may differ dramatically between the two approaches.
The current exchange rate method converts the value of goods and services using global currency exchange rates. This can offer better indications of a country's international purchasing power and relative economic strength. For instance, if 10% of GDP is being spent on buying hi-tech foreign arms, the number of weapons purchased is entirely governed by current exchange rates, since arms are a traded product bought on the international market (there is no meaningful 'local' price distinct from the international price for high technology goods).
The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets. (For example, India ranks 13th by GDP but 4th by PPP.)The PPP method of GDP conversion is most relevant to non-traded goods and services.
There is a clear pattern of the purchasing power parity method decreasing the disparity in GDP between high and low income (GDP) countries, as compared to the current exchange rate method. This finding is called the Penn effect.
For more information see measures of national income.