EXPENDITURE APPROACH January 30-February 1, 2013 Kingston, Jamaica

Background The expenditure approach to calculating GDP is the sum of household and government spending on goods and services, investment in fixed capital (construction, machinery and equipment), changes in inventories and exports less imports of goods and services.

Background GDP by Expenditure Approach = final consumption (C + G) + gross capital formation (I) + exports (X) – imports (M)

Expenditure Components Y = C + G + I + (X – M) C Consumption expenditure by household G Consumption expenditure by government I Gross Fixed Capital Formation plus Change in Inventories X Value of Exports M Value of Imports

Household Final Consumption Expenditure (HFCE) This consists of expenditure of resident households on the consumption of goods and services. For households, all consumed goods, whether durable (cars, refrigerators, air-conditioners etc.) or non-durable (food, clothes), are part of final consumption.

Household Final Consumption Expenditure (HFCE) Includes: goods and services bought for final consumption by households Estimated value of barter transactions goods produced for own final consumption by households Imputed value of housing services produced by owner occupiers

Household Final Consumption Expenditure (HFCE) Services produced by employing paid domestic staff Exclusion: expenditure on fixed assets in the form of dwellings or on valuables. Estimated using a commodity flow method

Government Consumption Expenditure (GCE) Final consumption expenditure of government is the value of goods and services produced by the industry for its own use. The estimates are computed as gross output less sales of goods and services by government entities.

Government Consumption Expenditure (GCE) Output is valued as the sum of the cost of production: - Compensation of employees - Intermediate consumption - Consumption of fixed capital - Other taxes(less subsidies) on production

Government Consumption Expenditure (GCE) The main data sources are: - Estimates of revenue and expenditure of central government - government educational institutions - parish councils - public health authorities - statutory bodies.

Gross Capital Formation Gross Fixed Capital Formation Gross fixed capital formation is defined as that part of the current output of goods and services, which adds to the stock of capital, and therefore increases the future potential income flows of the economy.

Gross Capital Formation contd It includes produced capital goods (machinery, buildings, roads, artistic originals etc.) and improvements to non-produced assets. Gross fixed capital formation is estimated using a commodity flow approach

Gross Capital Formation contd Changes in Inventories Inventories consist of: raw materials - goods owned by producers that have been purchased for intermediate consumption but not yet used finished goods - goods produced for sale but not yet sold work in progress – output that is not yet sufficiently processed for delivery to users

Gross Capital Formation contd Changes in Inventories Goods entering into inventories are recorded when products are acquired or produced, and valued at the prices prevailing at the time Goods withdrawn from inventories are recorded when products are sold or used, and valued at the prices prevailing at that time

Gross Capital Formation contd Changes in Inventories The Jamaican system accepts the valuation placed on inventories by the reporting establishments. Information is obtained from the - Annual National Income Survey - Financial statements

Net Exports International Merchandise Trade Statistics (STATIN) is the data source for imports and exports of goods. Trade statistics Imports of goods are valued c.i.f exports of goods are valued f.o.b In the national accounts,imports of goods are adjusted to f.o.b

Net Exports contd Data for trade in services are obtained from the Balance of Payments statistics.

Expenditure on GDP Currently GDP by Expenditure is estimated annually at current prices. GDP by Expenditure at constant prices is compiled but not yet published

Expenditure on GDP (contd) Expenditure Components2011 J$M 2011 J$M Final Consumption Expenditure1,261,961 HouseholdHFCE1,063,536 GovernmentGCE198,425 Gross Capital FormationGCF264,044 Gross Fixed Capital FormationGFCF258,015 InventoriesInv6,029 Gross Domestic Expenditure1,526,004 Export of Goods and ServicesExports383,866 Less Import of Goods and ServicesImports668,087 Expenditure on GDP1,241,783

Expenditure on GDP (contd)

THANK YOU