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An economy’s growth is measured by the change in the
volume of its output or in the real incomes of persons resident in the
economy. The 1993 United Nations System of National Accounts (1993 SNA)
offers three plausible indicators from which to calculate growth: the volume
of gross domestic product (GDP), real gross domestic income, and real gross
national income. The volume of GDP is the sum of value added, measured at
constant prices, by households, government, and the industries operating in
the economy. This year’s edition of World Development Indicators continues
to follow the practice of past editions, measuring the growth of the economy
by the change in GDP measured at constant prices.
Each industry’s contribution to growth in the economy’s output is
measured by growth in the industry’s value added. In principle, value added
in constant prices can be estimated by measuring the quantity of goods and
services produced in a period, valuing them at an agreed set of base year
prices, and subtracting the cost of intermediate inputs, also in constant
prices. This double-deflation method, recommended by the 1993 SNA and its
predecessors, requires detailed information on the structure of prices of
inputs and outputs.
In many industries, however, value added is extrapolated from the
base year using single volume indexes of outputs or, more rarely, inputs.
Particularly in the services industries, including most of government, value
added in constant prices is often imputed from labor inputs, such as real
wages or the number of employees. In the absence of well-defined measures of
output, measuring the growth of services remains difficult.
Moreover, technical progress can lead to improvements in production
processes and in the quality of goods and services that, if not properly
accounted for, can distort measures of value added and thus of growth. When
inputs are used to estimate output, as is the case for nonmarket services,
unmeasured technical progress leads to underestimates of the volume of
output. Similarly, unmeasured changes in the quality of goods and services
produced lead to underestimates of the value of output and value added. The
result can be underestimates of growth and productivity improvement and
overestimates of inflation. These issues are highly complex, and only a few
high-income countries have attempted to introduce any GDP adjustments for
these factors.
Informal economic activities pose a
particular measurement problem, especially in developing countries, where
much economic activity may go unrecorded. Obtaining a complete picture of
the economy requires estimating household outputs produced for home use,
sales in informal markets, barter exchanges, and illicit or deliberately
unreported activities. The consistency and completeness of such estimates
depend on the skill and methods of the compiling statisticians and the
resources available to them.
Rebasing national accounts
When countries rebase their national accounts, they update the weights
assigned to various components to better reflect the current pattern of
production or uses of output. The new base year should represent normal
operation of the economy—that is, it should be a year without major shocks
or distortions—but the choice of base year is often constrained by lack of
data. Some developing countries have not rebased their national accounts for
many years. Using an old base year can be misleading because implicit price
and volume weights become progressively less relevant and useful.
To obtain comparable series of constant price data, the World Bank
rescales GDP and value added by industrial origin to a common reference
year. In this year’s World Development Indicators, the reference year has
been changed from 1995 to 2000. Because rescaling changes the implicit
weights used in forming regional and income group aggregates, aggregate
growth rates in this year’s World Development Indicators are not comparable
with those from earlier publications with different base years.
Rescaling may result in a discrepancy between the rescaled GDP and
the sum of the rescaled components. Because allocating the discrepancy would
cause distortions in the growth rates, the discrepancy is left unallocated.
As a result, the weighted average of the growth rates of the components
generally will not equal the GDP growth rate. The shift to a more recent
reference year is to minimize the discrepancy in aggregate GDP and its
components, particularly in recent years.
Growth rates of GDP and its components are calculated using
constant price data in the local currency. Regional and income group growth
rates are calculated after converting local currencies to constant price
U.S. dollars using an exchange rate in the common reference year. The growth
rates in the table are average annual compound growth rates. Methods of
computing growth rates and the alternative conversion factor are described
in Statistical methods.
Changes in the System of National Accounts
World Development Indicators adopted the terminology of the 1993 SNA in
2001. Although most countries continue to compile their national accounts
according to the SNA version 3 (referred to as the 1968 SNA), more and more
are adopting the 1993 SNA. Some low-income countries still use concepts from
the even older 1953 SNA guidelines, including valuations such as factor
cost, in describing major economic aggregates. Countries that use the 1993
SNA are identified in Primary data documentation. |
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• Gross domestic product (GDP) at purchaser prices is the
sum of gross value added by all resident producers in the economy plus any
product taxes (less subsidies) not included in the valuation of output. It
is calculated without deducting for depreciation of fabricated capital
assets or for depletion and degradation of natural resources. Value added is
the net output of an industry after adding up all outputs and subtracting
intermediate inputs. The industrial origin of value added is determined by
the International Standard Industrial Classification (ISIC) revision 3.
• Agriculture corresponds to ISIC divisions 1–5 and includes forestry and
fishing. • Industry covers mining, manufacturing (also reported separately),
construction, electricity, water, and gas (ISIC divisions 10–45).
• Manufacturing corresponds to industries belonging to ISIC divisions 15–37.
• Services correspond to ISIC divisions 50–99. This sector is derived as a
residual (from GDP less agriculture and industry) and may not properly
reflect the sum of services output, including banking and financial
services. For some countries it includes product taxes (minus subsidies) and
may also include statistical discrepancies. |
