National Income Accounts: Overview and Applications Thorvaldur Gylfason

n Y + Z = C + I + G + X n Aggregate supply = aggregate demand n Y = C + I + G + X – Z (expenditure) n where C = C d + C z, I = I d + I z, etc. n Y = C d + I d + G d + X d n Y = C + S + T (allocation) n Y = wages+ interest + rent (income) n Y = coffee + tea +... (production) n Four equivalent definitions of GNP The meaning of GNP

n I = S + (T – G) + (Z – X) = private + public + foreign saving = private + public + foreign saving n (I – S) + (G – T) = Z – X n Domestic deficit = foreign deficit n Example: U.S in 1980s n Related concepts n NNP n GDP n GDI n GNI Saving and investment

n NNP = GNP – depreciation n GNP = C + I g + G + X – Z n NNP = C + I n + G + X – Z n GNP – NNP = I g – I n = depreciation n Recall: I =  K +  K n GDP = GNP – FI n FI = wages + interest (net) earned abroad n GNP = GDP + FI n GNP is legal concept, GDP is geographical n Turkey: GNP > GDP; Argentina: GNP GDP; Argentina: GNP < GDP Related concepts

n GDI = GNP + transfers = GDP + FI + TR Related concepts Y X - Z Definition GDP Trade balance Goods and nonfactor services GNP Current account Goods and services GDI Current account incl. transfers Goods and services plus transfers

n GNI = GNP + terms of trade effect n GNP = E + X – Z n where E = C + I + G and X = X N /P X n GNI = E + X* - Z n where X* = X N /P Z n TT = GNI – GNP = X* - X = X N /P Z - X N /P X = (X N /P X )(P X /P Z -1) n P x goes up  GNI goes up for given GNP n P z goes up  GNI goes down for given GNP Related concepts

n Allows us to measure GNP n Domestic uses n International comparisons n Measuring growth Why important?

n Does not include nonmarket activity n Work at home n Does not distinguish between n rising vs. falling incomes n equal vs. unequal distribution n stocks vs. flows n environment n resources (natural and human) n right vs. wrong exchange rates n work vs. leisure Qualifications

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  D F n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  D F n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  DF n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  D F n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  D F n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n NIA: S – I = G – T + X – Z n BOP:  R = X – Z +  D F n GFS: G – T =  B +  D G +  D F n MS:  M =  D +  R =  D G +  D P +  R Linkages

n GFS: G – T =  B +  D G +  D F n NIA: I – S =  D P -  M -  B n G – T + I – S =  D +  D F -  M =  D F -  R = X – Z n Therefore,  R = X – Z +  D F = X – Z + F = X – Z + F We can use NIA and GFS to derive BOP Application

n Y = AL a K 1-a n where A = E(K/L) a n Y = EK n  Y/Y =  A/A + a(  L/L) + (1-a)(  K/K) n  Y/Y = q + a(  L/L) + (1-a)(sY/K -  ) n g = q + (2/3) (1/3)((0.21(1/3) – 0.04) = q = q n g = 0.03  q = 0.01 n So, US growth can be traced to labor, capital, and technology in roughly equal proportions Growth accounting Recall: I =  K +  K

Growth accounting n g = sE -   = 0.06 E = 0.30 E = 0.40 E = 0.50 s = 0.10 g = g = g = s = 0.20 g = 0.00 g = 0.02 g = 0.04 s = 0.30 g = 0.03 g = 0.06 g = 0.09 s = 0.40 g = 0.06 g = 0.10 g = 0.14

Country A Country B A Tale of Two Countries

Country A Country B Girls at primary school 100%72% A Tale of Two Countries

Country A Country B Girls at primary school 100%72% Investment ratio 25%11% A Tale of Two Countries

Country A Country B Girls at primary school 100%72% Investment ratio 25%11% Export ratio 58%23% A Tale of Two Countries

Country A Country B Girls at primary school 100%72% Investment ratio 25%11% Export ratio 58%23% Primary export ratio 33%80% A Tale of Two Countries

Country A Country B Girls at primary school 100%72% Investment ratio 25%11% Export ratio 58%23% Primary export ratio 33%80% Inflation 10%18% A Tale of Two Countries

Country A Country B Girls at primary school 100%72% Investment ratio 25%11% Export ratio 58%23% Primary export ratio 33%80% Inflation 10%18% Growth per capita 3%-2% A Tale of Two Countries

And the countries are: MauritiusMadagascar Girls at primary school 100%72% Investment ratio 25%11% Export ratio 58%23% Primary export ratio 33%80% Inflation 10%18% Growth 3%-2% A Tale of Two Countries

Madagascar and Mauritius: GNP per capita Current US$, Atlas method