Where does GDP come from?
One prominent way to assess a country's economy—and compare it to others—is by calculating its gross domestic product, or GDP, a term that describes the overall value of all the goods and services made within a single country, even by foreign-owned companies. In the US, the Bureau of Economic Analysis provides an estimate of GDP and its growth rate each quarter, called a nominal GDP. Real GDP, usually calculated on yearly terms, accounts for inflation and deflation.
What separates the concept of GDP from GNI, or gross national income, is that the former measures product made within a country, whereas the latter measures product made specifically by the citizens of that country. The GDP growth rate of an individual country is the calculation of how much the country’s GDP is growing from quarter to quarter.
While he did not use the term gross domestic product, English economist William Petty devised the original concept of measuring GDP in the late 1600s as a way of preventing excessive taxation against landlords.
The modern establishment of GDP began in response to the economic devastation of the Great Depression. In 1937, economist Simon Kuznets charted all economic production within the United States from 1929 to 1935, both positive and negative, and presented his “national income” results to Congress. As the United States considered entering WWII amidst widespread fear of another economic catastrophe, Kuznets’s GDP statistics were used to demonstrate that entering the war would not prevent the country’s economic recovery. In 1944, the Bretton Woods Conference established international standards and cooperation among 44 countries, and GDP was established as the standard measurement of economic growth within a country.
The phrase gross domestic product was in use by the 1950s, its common abbreviation, GDP, by the 1960s. The word gross as used here means “entire” or “total,” e.g., “the gross amount.”
In understanding GDP, economists stress that GDP is not an evaluation of economic or social well-being, as the number is sometimes misused, since a high GDP could still exist despite economic turmoil or income inequality. This distinction continues to be misunderstood to this day—though some understand it quite well, such as Jigme Singye, who become the king of Bhutan in 1972 and stated that his purpose was to, rather than increase the GDP, increase its GNH, or gross national happiness.
Economic measurements closely related to GDP include GNP (gross national product), now often called GNI, or gross national income, which adds a country’s GDP to all the income made by its citizens living abroad.
“The ratio of debt to GDP, now 77 percent (twice the average of the past half-century) would approach 100 percent in a decade and top 120 percent in two decades.”
Howard Gleckman, “Economists estimate the long-term consequences of big tax cuts,” Christian Science Monitor (February 5, 2017)
“It only grew at an annual pace of 0.7% in the first three months of the year, according to the Commerce Department's report on gross domestic product, the broadest measure of economic activity.”
Patrick Gillespie, “Trump's 1st economic report card: Slowest growth in 3 years,” CNN (April 28, 2017)
“The rate of growth for the first quarter of 2017 is, however, an improvement over the revised -1.73 per cent GDP growth rate figure recording as of December 2016.”
Deolu, “Nigeria is Still in Economic Recession..GDP Growth Report Surfaces,” Information Nigeria (May 24, 2017)