Download Level and growth rate of per capita GDP

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
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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
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• “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)
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Decomposition of per capita GDP
GPD
GPD
Employment

*
Population Employment Population
GPD
Employment
Working Age Population

*
*
Employment Working Age Population
Population
Working Age Population: 15-64 (International standard and
Eurostat definition) (Europe 2020: 20-64)
Labour Productivity (per person employed)* Employment
Rate*Working age population share
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Decomposition of per capita GDP
GPD
Total Hours Worked

*
*
Total Hours Worked
Employment
Employment
Working Age Population
*
*
Working Age Population
Population
Labour Productivity (per hour worked)*Hours per
worker*Employment Rate*Working age population share
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2012 (OECD data)
Austria
Belgium
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Netherlands
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
United Kingdom
United States
Euro area
GDP per head GDP per hour
of population, worked, current
USD
prices, USD
43848
40068
26706
42176
23625
38282
36249
41231
25309
22011
43579
33117
43146
22167
25275
25323
27493
32081
43176
37446
51689
36205
53.7
61.8
31.0
59.5
27.8
49.0
59.5
58.3
34.5
28.3
71.2
46.7
60.2
28.1
34.0
34.7
39.2
50.0
54.7
48.5
64.1
52.9
Hours worked
per head of
population
817
648
862
708
850
782
609
708
734
779
612
709
717
790
744
730
702
642
789
772
806
684
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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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GDP growth rates
• Annual rate of change:
(GDPt1-GDPt0)/GDPt0 =%∆GDP which can also be
expressed as difference of natural logarithms
∆lnGDP= lnGDPt1- lnGDPt0
• The difference between two annual observations of
the natural logarithm of a variable [ln(zt1) - ln(zt0)]
corresponds, with a minimal margin of error, to the
percentage rate of change of the same variable over
the same tame interval: [ln(zt1) - ln(zt0)]  (zt1-zt0)/zt0
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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 (zt1-zt0)/zt0
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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
 (zt1-zt0)/zt0  [(xt1-xt0)/xt0]+ [(yt1-yt0)/zt0]
• %∆(GDP/Population) = %∆(GDP/Employment)
+ %∆(Empl/Pop) or
• ∆ln(GDP/Population) = ∆ln(GDP/Employment)
+ ∆ln(Empl/Pop)
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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):
[(GDPtn/GDPt1)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)
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GDP, employment and productivity:
percentage change on previous year
1996
1997
1998
1999
2000
Average
19952000
GDP
1.7
2.7
2.9
3.0
3.8
2.8
Employment
0.6
1.1
1.8
1.9
2.2
1.5
Labour productivity
1.1
1.6
1.1
1.1
1.6
1.3
EU (15 countries)
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Finland
Germany
Austria
Slovenia
France
EU28
Spain
Hungary
Italy
Poland
Romania
R&D intensity (total
expenditures on GDP)
2012
2020 target
3.55
4.00
2.98
3.00
2.84
3.76
2.80
3.00
2.29
3.00
2.07
3.00
1.30
2.00
1.30
1.80
1.27
1.53
0.90
1.70
0.49
2.00
Annual average
growth (compound)
2012-2020
1.50
0.08
3.57
0.87
3.43
4.75
5.53
4.15
2.36
8.27
19.22
Compound annual growth rate= [(Rdint20/Rdint12)1/8 -1]x100
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