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Level and growth rate of per capita GDP Gross domestic product (GDP) is a measure of economic activity: value of all goods and services produced and sold.

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Presentation on theme: "Level and growth rate of per capita GDP Gross domestic product (GDP) is a measure of economic activity: value of all goods and services produced and sold."— Presentation transcript:

1 Level and growth rate of per capita GDP Gross domestic product (GDP) is a measure of economic activity: value of all goods and services produced and sold in the market less the value of goods or services used in their creation Level of per capita GDP (expressed in Purchasing Parity Standards) Change of per capita GDP (before and after the 2008 crisis) In terms of level and rate of change of GDP the performance across EU countries (and regions) is remarkably different 1

2 Purchasing Parity Standard (PPS ) In order to compare the GDP per capita of different countries in a given year the basic figures are expressed in PPS, i.e. a common currency that eliminates the differences in price levels between countries These figures are intended for cross-country comparisons rather than for temporal analyses (in that case GDP at constant prices is needed) because, over time, the level of prices may change differently between countries 2

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4 “The use of PPS series rather than the euro-based series tends to have a levelling effect, as those regions with very high GDP per inhabitant in euro terms also tend to have relatively high price levels (for example, the cost of living in central Paris or London is generally higher than the cost of living in rural areas of France or the United Kingdom).” “Calculations for GDP per inhabitant that are based on PPS series instead of euro series can result in considerable differences when ranking regions. For example, in 2009, the Swedish region of Ostra Mellansverige was recorded as having a GDP per inhabitant of EUR 26.600, ranking above the Italian region of Marche, with EUR 25.600. However, in PPS terms, Marche, at 24.600 PPS per inhabitant, was above of Ostra Mellansverige, at 23.800 PPS.” Eurostat Regional Yearbook 2012 (page 28) 4

5 5 Decomposition of per capita GDP Labour Productivity (per person employed)* Employment Rate*Working age population share Working Age Population: 15-64 (International standard and Eurostat definition) (Europe 2020: 20-64)

6 6 Decomposition of per capita GDP Labour Productivity (per hour worked)*Hours per worker*Employment Rate*Working age population share

7 7 2012 (OECD data) GDP per head of population, USD GDP per hour worked, current prices, USD Hours worked per head of population Austria 4384853.7817 Belgium 4006861.8648 Czech Republic 2670631.0862 Denmark 4217659.5708 Estonia 2362527.8850 Finland 3828249.0782 France3624959.5609 Germany 4123158.3708 Greece 2530934.5734 Hungary 2201128.3779 Ireland 4357971.2612 Italy 3311746.7709 Netherlands 4314660.2717 Poland 2216728.1790 Portugal 2527534.0744 Slovak Republic 2532334.7730 Slovenia 2749339.2702 Spain 3208150.0642 Sweden 4317654.7789 United Kingdom 3744648.5772 United States 5168964.1806 Euro area3620552.9684

8 8 GDP at constant prices The calculation of the annual growth rate of GDP volume is intended to allow comparisons of the dynamics of economic development both over time and between economies of different sizes For measuring the growth rate of GDP in terms of volumes, the GDP at current prices are valued in the prices of the previous year; then, the computed volume changes are imposed on the level of a reference year; this is called a chain-linked series Accordingly, price movements will not inflate the growth rate

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10 10 GDP growth rates Annual rate of change: (GDP t1 -GDP t0 )/GDP t0 =%∆GDP which can also be expressed as difference of natural logarithms ∆lnGDP= lnGDP t1 - lnGDP t0 The difference between two annual observations of the natural logarithm of a variable [ln(z t1 ) - ln(z t0 )] corresponds, with a minimal margin of error, to the percentage rate of change of the same variable over the same tame interval: [ln(z t1 ) - ln(z t0 )]  (z t1 -z t0 )/z t0

11 Percentage rate of change and log difference Given a variable z, we take the natural log of it ln(z) and, then, differentiate (compute the first derivative) dln(z)/dz= 1/z Thus, the differential (or infinitesimal variation) of the natural log of a variable is equal to its percentage infinitesimal variation: dln(z)=dz/z Considering time variations and assuming  ln(z)  dln(z), i.e. relative small variations of natural logs, we can write  ln(z)   z/z, which is precisely (z t1 -z t0 )/z t0 11

12 Decomposition of growth rates If z = x*y, (e.g. GDP per capita= GDP per employee times employees over population) dln(z)= dln(x*y)= dln(x)+dln(y) dz/z=dx/x + dy/y   z/z   x/x +  y/y  (z t1 -z t0 )/z t0  [(x t1 -x t0 )/x t0 ]+ [(y t1 -y t0 )/z t0 ] %∆(GDP/Population) = %∆(GDP/Employment) + %∆(Empl/Pop) or ∆ln(GDP/Population) = ∆ln(GDP/Employment) + ∆ln(Empl/Pop) 12

13 Annual average rate of change Annual rate of change in a given period: more informative than the total variation between the initial and the final year –Mean of the annual rates of changes (or mean of the annual log differences) –Compound annual growth rate: requires only data for the initial (t1) and final year (tn): [(GDP tn /GDP t1 ) 1/(n-1) - 1]*100 –Linear regression of the natural log of GDP at constant prices on time (uses all the annual data; it is suitable when the period of time considered is sufficiently long) 13

14 19961997199819992000 Average 1995- 2000 EU (15 countries) GDP1.72.72.93.03.82.8 Employment0.61.11.81.92.21.5 Labour productivity1.11.61.1 1.61.3 GDP, employment and productivity: percentage change on previous year 14

15 15 R&D intensity (total expenditures on GDP) Annual average growth (compound) 20122020 target2012-2020 Finland3.554.001.50 Germany2.983.000.08 Austria2.843.763.57 Slovenia2.803.000.87 France2.293.003.43 EU282.073.004.75 Spain1.302.005.53 Hungary1.301.804.15 Italy1.271.532.36 Poland0.901.708.27 Romania0.492.0019.22 Compound annual growth rate= [(Rdint 20 /Rdint 12 ) 1/8 -1]x100


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