What is GDP?
O Gross Domestic Product (GDP) is a measure of the economic performance of a country, city or state. That indicator is calculated from the sum of all final goods and services produced in local currency over a period.
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What is GDP for?
The objective of this calculation is to indicate how much is produced, invested and consumed in each location. GDP is usually the thermometer to know if a country's economy is 'doing well', that is, if the country is growing.
How is it calculated?
Each country has its own metric. In Brazil, GDP is calculated by the Brazilian Institute of Geography and Statistics (IBGE). A country's annual GDP is the main measure used by economists to compare the economic growth of two countries over time.
To calculate GDP, various data are used, according to IBGE. Some are produced by the institute and others come from external sources. These are some of the pieces that make up the GDP* puzzle:
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- Balance of Payments (Central Bank)
- Declaration of Economic-Fiscal Information of Legal Entities – DIPJ (Federal Revenue Secretariat)
- Broad Producer Price Index – IPA (FGV)
- Broad National Consumer Price Index – IPCA (IBGE)
- Municipal Agricultural Production – PAM – (IBGE)
- Annual Trade Survey – PAC (IBGE)
- Annual Services Survey – PAS (IBGE)
- Family Budget Survey – POF (IBGE)
- Annual Industrial Survey – Company – PIA-Empresa (IBGE)
- Monthly Industrial Survey – Physical Production – PIM-PF (IBGE)
- Monthly Commerce Survey – PMC (IBGE)
- Monthly Services Survey – PMS (IBGE)
*Source: IBGE
The G1 website produced a very didactic explanation, detailing how this calculation is made. There are three most commonly used ways to achieve the same result:
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Add up everything that occurs during the analyzed period of time. This account includes the results of agriculture, industry and services.
Demand
Add up what was spent in the country over a period. This account includes family consumption, government spending and investments by companies and the government. In addition, the trade balance balance is also added: what the country exported minus what was imported.
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Income
Add up all remunerations. This account includes salaries, interest, rent and distributed profits.
Oh! Although GDP is generally calculated by country, you can also measure the GDP of a city, neighborhood or economic sector, for example.
In this video, IBGE explains in an easy way how GDP is calculated:
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GDP per capita
It is the GDP divided by the number of inhabitants of the place to which it refers. GDP per capita is a parallel measure that assesses the size of an economy in proportion to its population. In other words, the intention is to measure the distribution of goods and products in each location. For example, despite the country's GDP Brazil and Canada were around 7,4 trillion at the end of 2019, Brazil's GDP per capita was much lower, because it was shared by 211 million Brazilians, more than four times the Canadian population in the same period. ((CNN)
GDP x wealth
GDP, however, is not the best measure of a country's wealth, as it does not reflect the “stock” but rather the flow of goods and services over a given period. The economic flow accumulated before the calculation period is disregarded. To compare wealth between countries, their National treasure, which functions as the government's cash register.
Limitations of GDP as an indicator
As economic growth does not alone reflect the quality of life, health and education of a place, the use of GDP as a measure of living conditions is limiting. Factors such as the level of income distribution, the level of environmental preservation and other relevant aspects.
See also:
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