Monday, April 29, 2013

GDP and International Comparisons

It is frequently stated that Gross Domestic Product (GDP) figures for Ireland are not suitable for international comparisons because of the distorting effect the presence of MNCs here and their use of tax arbitrage activities.  Gross National Product (GNP) is sometimes provided as an alternative (though a hybrid is probably best).

GNP is GDP plus net factor income from abroad (the flows of wages, rents, interest and profits into and out of a country).  The outflow of MNC profits means net factor income is negative for Ireland and GNP is less than GDP.

This can easily be seen using data from Eurostat.  Here is a chart of Gross National Income (GNI) as a proportion of GDP for 2011.  GNI is GNP plus net transfers from abroad (the flows of foreign aid, EU contributions/subsidies and other transfers).  GNI is largely the same as GNP.


For most countries the difference between GNI and GDP is small.  Ireland and Luxembourg are clear outliers.  International comparisons based on GDP (such as tax revenue statistics) do not take this into account.

Here is a similar chart but this time from Eurostat’s Institutional Sector Accounts.  This shows Gross Disposable Income of the household sector as a proportion of GDP. (Data for Malta and Bulgaria is not available).  Gross Disposable Income of households is

  1. Self employed profits + net property income + wages earned = Gross Income
  2. –  taxes paid – social contributions + social transfers = Gross Disposable Income 


Again, Ireland is towards the bottom of the chart but it is no longer in a small group of outliers.   It is difficult to determine the reasons for the relative rankings in the chart.  That is not the purpose and the reasons are manifold.  There may be something to the ranking but I’m not sure.

The purpose is simply that while some dislike the use of GDP in an Irish context because of the relative gap to GNP, maybe there are some in other countries who dislike GDP because it does not reflect the relative disposable income of their household sectors.  National and Sectoral accounts have something for everyone.

[I should be noted that Household GDI is 66% of Irish GNP which is bang on the EA17 average as a % of GDP.]

Finally here is Gross Operating Surplus of the corporate sector (financial and non-financial corporations) as a proportion of GDP.  Gross Operating Surplus is gross value added less wages paid less production taxes.


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