Size of GDP

Gross domestic product (GDP) is the standard measure of the value of the goods and services produced by a country during a period. Per capita GDP is a broad indicator of economic living standards.

Each country calculates GDP in its own currency and, in order to compare countries, these estimates have to be converted into a common currency. Often, the conversion is made using exchange rates, but these give a misleading comparison of the real volumes of goods and services in the GDP. Comparisons of real GDP between countries can best be made using purchasing power parities (PPPs) to convert each country’s GDP into a common currency. PPPs are currency converters that equalise the purchasing power of the different currencies. (see also Rates of conversion).

Definition

What does gross domestic product mean?

"Gross” signifies that no deduction has been made for the depreciation of machinery, buildings and other capital products used in production. "Domestic” means that it is production by the residents of the country. As many products are used to produce other products it is necessary to define production in terms of value added.

GDP can be measured in three different ways: as output less intermediate consumption (i.e. value added) plus taxes less subsidies on products (such as VAT); as the income earned from production by summing employee compensation, gross operating surplus of enterprises and government and net taxes on production and imports (VAT, payroll tax, import duties, etc); or as the expenditure on the goods and services produced by summing consumption expenditures, gross fixed capital formation, changes in inventories and exports less imports.

Comparability

Virtually all OECD countries now follow the 1993 System of National Accounts. However, since Luxembourg and, to a lesser extent, Switzerland have a relatively large number of frontier workers, their GDP per capita is overstated compared with other countries. Such workers contribute to the GDP but are excluded from the population figures.

For some countries, the latest year has been estimated by the Secretariat. For several countries, the historical data have also been estimated by the OECD; if countries revise their methodologies but only supply revised data for recent years, the historical data have been estimated by mechanically linking the new and old series.