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4.1 Growth of output

About the data
Definitions
Data sources

About the data

Growth rates are calculated using constant price data in the local currency. Regional and income group growth rates are calculated after converting local currencies to U.S. dollars using the average official exchange rate reported by the International Monetary Fund for the year shown or, occasionally, an alternative conversion factor determined by the World Bank’s Development Data Group. The growth rates in the table are annual average compound growth rates. Methods of computing growth rates and the alternative conversion factor are described in Statistical methods.

Measuring growth

An economy’s growth is measured by the increase in value added produced by the individuals and enterprises operating in that economy. Thus measuring real growth requires estimates of GDP and its components valued in constant prices from one period to the next. In principle, real value added can be estimated by measuring the quantity of goods produced in a period, valuing them at an agreed set of base year prices, and subtracting the cost of inputs, also in constant prices. This double deflation method, recommended by the United Nations (UN) System of National Accounts, requires detailed information on the structure of prices of inputs and outputs. In some sectors, however, value added is extrapolated from the base year using volume indexes of inputs and outputs. In other sectors, particularly services, real output is imputed from labor inputs, such as real wages or the number of employees. The real output of governments and other unpriced services are calculated in the same way. In the absence of well-defined measures of output, measuring the real growth of services remains problematic.

Technical progress can lead to improvements in production and the quality of goods. If not properly accounted for, either effect can distort measures of value added and thus of growth. When inputs are used to estimate output, as in services, unmeasured technical progress leads to underestimates of the quantity and real value of output. Unmeasured changes in the quality of goods produced also lead to underestimates of real value. The result can be underestimates of real growth and productivity change and overestimates of inflation.

Nonmarket services pose a particular problem, especially in developing countries, where much economic activity may go unrecorded. Obtaining a complete picture of the economy requires estimating household outputs produced for local sale and for home use, barter exchanges, and illicit or deliberately unreported activity. How consistent and complete such estimates will be depends on the skill of the compiling statisticians and the resources available to them.

Rebasing national accounts

Countries occasionally rebase their national accounts by collecting a complete set of observations on the value and volume of production in a new base year. Using these data, they update price indexes to reflect the relative importance of inputs and outputs in total output, and generate volume indexes to reflect relative price levels. The new base year should represent normal operation of the economy—that is, a year without major shocks or distortions. But the choice of base year and the timing of economic surveys are also determined by administrative convenience, resource availability, and international agreement. Some developing countries have not rebased their national accounts for many years. Using an old base year can be misleading because implicit price and volume weights become progressively less relevant and useful.

The World Bank collects constant price national accounts series in national currencies and the country’s original base year. To obtain comparable series of constant price data, GDP and its main sectoral components by industrial origin (agriculture, industry, and services) are rescaled to a common reference year, currently 1987. This process gives rise to a discrepancy between the rescaled GDP and the sum of the rescaled components. This discrepancy is allocated to the estimate of services value added on the output side and to private consumption expenditure on the expenditure side.

Changes in the System of National Accounts

Most countries use the definitions of the UN System of National Accounts (SNA), series F, no. 2, version 3, referred to as the 1968 SNA. Version 4 of the SNA was completed in 1993. Until new economic surveys can be implemented, most countries will continue to follow the 1968 SNA. A few low-income countries still use concepts from older SNA guidelines, including valuations such as factor cost and market prices, in describing major economic aggregates.

Definitions

• Gross domestic product at purchasers’ prices is the sum of the gross value added by all resident and nonresident producers in the economy plus any taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. The industrial origin of value added is determined by the International Standard Industrial Classification (ISIC), rev. 2. • Agriculture corresponds to ISIC divisions 1–5 and includes forestry and fishing. • Industry comprises value added in mining, manufacturing (also reported as a separate subgroup), construction, electricity, water, and gas. • Manufacturing refers to industries belonging to divisions 15–37. • Services correspond to ISIC divisions 50–99.

Data sources

National accounts data for developing countries are collected from national statistical organizations and central banks by visiting and resident World Bank missions. Data for industrial countries come from OECD data files. The World Bank rescales constant price data to a common reference year. The complete national accounts time series is available on the World Development Indicators CD-ROM. For information on the OECD national accounts series see OECD, National Accounts, 1960–1995, volumes 1 and 2.

THE WORLD BANK METHODOLOGY:

----- On External Debt

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----- On WORLD DEVELOPMENT INDICATORS

Size of the economy

Quality of life

Development progress

Trends in long-term development

Long-term structural change

Key indicators for other economies

Population

Land use and deforestation

Growth of output

Credit, investment and expenditures

Integration with the global economy

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