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Here is something I don't understand about GDP.

If an exchange is internal to the unit under analysis it is counted as GDP. If the same exchange happens between two units it is added to the GDP of the exported and subtracted to the GDP of the importer, so on a net basis it is zero.

For instance, Scotland selling oil products to England counts as UK internal trade and so increases the UK's GDP. However, if the UK broke up, Scotland selling oil products to England would add to the GDP of Scotland and subtract from that of England.

Therefore, Scotland selling oil to England contributes to world GDP through the UK's GDP, but Scotland selling oil to Ireland doesn't have a net effect on world GDP. Unless, of course, world GDP is the sum of national GDPs plus the value of international trade. Is that how world GDP is calculated?

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Mon Jan 14th, 2008 at 05:51:08 PM EST
[ Parent ]
GWP or gross world product is defined as the sum of all national GDP accounts.

GDP = C + I + G + (X-M)
The X-M (export - import) difference is there just to adjust for the trade balance of the economy for a single country. Imports are in fact counted in the consumption (C) portion of the equation i.e. the exported Scottish oil to Ireland is consumed by the Irish and therefore raises their GDP at the C part.

Another way to write it would be to split consumption into endogenous and imported i.e.:

GDP = (Ce + M) + I + G + (X-M)
GDP = Ce + I + G + X

Hence trade does not need to be added again as it would be double counting.

Orthodoxy is not a religion.

by BalkanIdentity (balkanid _ at _ google.com) on Mon Jan 14th, 2008 at 07:59:49 PM EST
[ Parent ]

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