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  • 04 March, 2021

  • 4 Min Read

Gross Domestic Product vs Gross Value Added

Gross Domestic Product

  • Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
  • GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted)
  • Thus the components of GDP are Consumption (C) plus Investment (I) plus Government Spending (G) plus BOP i.e. Exports minus Imports (X-M)
  • GDP is calculated using this standard formula: C + I + G + (X-M).
  • GDP is commonly used as an indicator of the economic health of a country, as well as to determine a country’s standard of living
  • Since the mode of measuring GDP is uniform from country to country, GDP can be used to compare the productivity of various countries

Gross Value Added

  • The term that is used to denote the net contribution made by a firm is called its value added
  • The raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’.
  • Therefore the value added of a firm is, value of production of the firm – value of intermediate goods used by the firm.
  • Gross value added (GVA) is defined as the value of output less the value of intermediate consumption.
  • When the value of taxes on products (less subsidies on products) is added, the sum of value added for all resident units gives the value of gross domestic product (GDP).
  • Thus, Gross value added (GVA) = GDP + subsidies on products – taxes on products

GDP vs. GVA

  • Gross value added (GVA) is the value addition done to a product resulting in the production of final product whereas Gross Domestic Product (GDP) is the total value of products produced in the country.
  • While GDP gives a picture of whole economy, GVA gives pictures at enterprises, government and households levels.
  • In other words, GDP is GVA of all enterprises, government and households.

Source: AspireIAS Notes


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