Gross Domestic Product

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The Philippine economy is commonly measured by gross national product (GNP) and gross domestic product (GDP). Between GNP and GDP, GDP is often the gauge of the economic well-being of a country.

GNP is the total value of final goods and services by Filipino residents regardless of their location, whether abroad or in the Philippines, in a given period. GDP, on the other hand, is the total value of final goods and services produced within the Philippines in a given period.

GNP and GDP are the most common economic indicators used in gauging the health of an economy. In macroeconomics, GNP and GDP are parts of the system of national accounts.

GNP and GDP can be evaluated based on current (nominal) and constant (real) prices. Nominal GNP and GDP are valued using current market prices. Real GNP and GDP are measured using constant prices using a base year. At present, real GNP and GDP are measured based on 1985 prices.

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The Philippine system of national accounts

To better appreciate GNP and GDP, these two terms must be discussed in the context of national accounts. National accounts refer to economic activities such as production, expenditure and income, among others. The system of national accounts is a method of statistics that serves as the basis for measuring the aforementioned economic activities. In the Philippines, production and expenditure are the bases for measuring economic activities. These activities are measured through the GNP and GDP.

The first system of national accounts customized for developing countries was first developed in 1953 --- the UN’s A System of National Accounts and Supporting Tables. The UN improved the system and came up with the 1963 UN System of National Accounts (UNSNA), which was later revised in 1993 and 2008.

National accounts estimation in the Philippines was first given to the Central Bank in the 1950s. The first national account series was produced for the period 1946 to 1956. Later, the task of estimating the national accounts was transferred to the Office of Statistical Coordination and Standards (OSCAS), which later became the National Statistical Coordination Board (NSCB), of the National Economic Council (NEC), which later became National Economic and Development Authority (NEDA).

Since then, national accounts estimation and analysis are used for policy formulation and socioeconomic planning.

Approaches to measuring the economy

In the Philippines, GNP and GDP are often measured using the production and expenditure approaches.

The production approach

The production approach measures the GDP based on industrial origin. The production side (or supply side) is made up of three main sectors: agriculture, industry and service.

Agriculture has three subsectors, namely, agriculture, which covers palay, corn and other crops; fisheries including municipal and commercial fishing, and aquaculture; and forestry. The production of seaweeds is under fisheries.

Under industry are the subsectors of manufacturing, mining and quarrying, construction, and electricity, gas and water. Manufacturing covers the production of food, beverage, garments, and electronic and semi-conductor products, among others. Mining and quarrying includes the mining of gold, copper and nickel, among others. Construction is broken into private and public construction activities.

Service has transportation, communication and storage; trade; finance; ownership dwellings and real estate; private services; and government services. Transportation, communication and storage subsector includes air, water and land transport; and the use of mobile phones, land lines and Internet usage, among others. Trade covers wholesale and retail. Finance consists of banks, non-banks and insurance. Stock market and bonds are under finance. Private services include activities that involve recreational (e.g., watching movies and plays); hotel and restaurant (dining and drinking); business (e.g., BPOs, call centers and medical transcription); and personal (e.g., laundry and funeral), among others.

The expenditure approach

The expenditure (approach) is based private consumption, government consumption, capital formation, exports and imports. When a consumer eats hamburger, drinks soda, shops for clothes, goes to the spa, buys appliances and cars, these spending activities are considered private consumption. Meanwhile, when the government buys cranes and trucks for its infrastructure activities, these spending activities are called government consumption.

Capital formation has the subsector of fixed capital, with construction, durable equipment, and breeding and stocks and orchard development. Exports and imports have two subsectors --- merchandise and non-factor services. Export of non-factor services captures the business process outsourcing (BPO) and other forms knowledge process outsourcing.

The total value goods and services computed under production is equal to the total value products and services computed under expenditure.

The production and expenditure approaches measure the GDP only, or the domestic economy. GNP is measured based on GDP and net factor income from abroad. Net factor income from abroad refers to the goods and services produced and rendered by Filipinos outside the Philippines. Examples of net factor income from abroad are OFW remittances, and foreign earnings of Philippine companies.

GDP’s limitations

GDP is a comprehensive yardstick of economy’s health but GDP is not the end all and be all of the economy as it has also missed some details.

Non-productive activities

These are goods and services that cannot be measured using market prices. Examples of these are services of housewives, and family members during harvest season; and production of illegal gambling such as jueteng, drugs and prostitution.

Informal sector

The term often refers to the sidewalk vendors and home-based businesses that may opt to understate their income. But this also refers illegal activities gambling and drugs.

Environmental cost

Environment is one of the casualties of development. Environmental costs may come in the form of soil erosion and dying forest because of logging; and water pollution because of mining, among others.

Social cost

The OFWs earn dollars to meet the needs of their families but their absence has resulted in broken homes and dysfunctional family. GDP is neither a measure of material well-being nor an indicator of welfare.

The Philippine economy through the years

Persistently erratic with episodes of growth and “boom-bust” growth are among the terms that will aptly describe the Philippine economy through the years.

Debt-steered growth in the 1970s

Economic growth was decent in the 1970s, averaging at 5.7 percent. The lowest growth posted was 3.6 percent. The highest growth rates posted were 8.8 percent and 8.9 percent in 1973 and 1976, respectively. But growth in that decade was driven by aggressive foreign borrowings, which were encouraged by multilateral institutions to build up dollars in light of successive oil shocks. The foreign borrowings resulted not only in public spending growth in infrastructure but also in deficits. It was also the 1970s when more Filipinos started going abroad and Middle East was their favorite destination.

Sedentary growth in the 1980s

The 1980s was both the “dark ages”and “renaissance” in the Philippine economy. Given the political back draft culminated by the assassination of Benigno Aquino, Jr., the economy slid from 5.1 percent in 1980 to 3 percent level to 1.9 percent before it plummeted negative 7.3 percent. Political events took the center stage again with the demise of Ferdinand Marcos rule through the 1986 EDSA Revolution and the rise of Corazon Aquino to power and once again, the economy bounced to 3.4 percent before it reached the respectable 6 percent level. The last four years of the decade were spent battling foreign debt and restoring investors’ confidence; and framing and ratifying the new Constitution and fighting military unrest. The Cory administration also started easing the government’s protectionist policy.

Recovery in the 1990

The economy posted an average 2.8-percent growth, a rebound from the average 2.0-percent growth in the 1980s. The decade was studded by two natural disasters (1990 earthquake and 1991 Mount Pinatubo eruption), power crisis, El Niño and Asian crisis. The economy once again suffered sharp reversals before the end of Cory administration. But with the Ramos administration’s aggressive effort to rebuild momentum through privatization of government enterprises, more pronounced public-private partnerships and substantial reforms under the Ramos administration. Deregulations in the sectors of banking, oil telecommunications and airlines also paved the way for more industry players. These efforts paid off as the economy hit 4-percent and 5-percent levels. But in 1997, the economy amid its recovery was interrupted by the Asian crisis. From a high 5.8 percent, the economy slid to negative 0.6 percent.

Still a fickle growth in the 2000s

The economy recovered from the Asian crisis in the 2001 as it rebounded to 6 percent. But after the external shock that was the Asian crisis, the economy braced yet another series. First was the fiscal crisis. This resulted from the government’s decision to bail out the National Power Corporation’s debt of P200 billion. Eventually, the Philippines got “out of the woods” and enjoyed over 5-percent level growth from 2004 to2006. In 2007, the economy posted a 7.2-percent growth, the highest since 1988. But in 2008, the economy was again battered by challenges, the rice and food crisis in first quarter, oil crisis in the second quarter and global crisis in the second quarter. The economy rebounded by the end of 2009 and it again posted a record high growth of 7.9 percent in the first semester of 2010.

External links

References

  • Based on Philippine Institute for Development Studies. (2006). The GNP and GDP: understanding their scope and measurement. Economic Issues of the Day
  • Balisacan, A. and Hill, H. The Philippine Economy Development, Policies and Challenges. Ateneo de Manila University Press, 2003
  • Froyen, R. Macroeconomics Theories and Policies. Prentice Hall, Inc., 1999