1 Prepared by Dr Howarth Bouis, IFPRIGross Domestic Product (GDP) measures the total output of goods and services for final use produced by residents and nonresidents. Gross National Product (GNP) is GDP plus net factor income from abroad, which is the income residents receive from abroad for factor services (labor and capital) less similar payments made to nonresidents who contributed to the domestic economy (World Bank, 1994). This correction for net factor income from abroad is typically a small percentage of GNP, so that GDP and GNP are usually highly correlated.
Data for per capita GDP in local currency corrected for inflation (in this case expressed in 1987 currency) are used in the analysis in Chapter 1. Data for per capita GNP expressed in US dollars at official exchange rates were also available for use in this analysis. However, official exchange rates may change abruptly from one year to the next, depending among other things on shifts in government monetary policy, with no comparable abrupt shift in the underlying welfare (real income) of the population.
In order to provide comparability across countries in absolute income levels, estimates of GDP calculated using purchasing power parities (PPP) are given accompanying the individual country charts in Chapter 2. The use of official exchange rates to convert the national currency figures to US dollars does not attempt to measure the relative domestic purchasing powers of countries (e.g. the cost of comparable housing in two countries expressed in US currency may be quite different). The United Nations International Comparison Project (ICP) has developed measures of real GDP on an internationally comparable scale using purchasing power parities instead of exchange rates as conversion factors (UNDP, 1993).
The growth rate for Gross Domestic Product (GDP) was calculated (described in Gujarati (1988), p.147-150) by estimated the following regression using ordinary least squares:
ln GDP = a1 + a2TWhere T is a time trend, the estimated coefficient a2 measures the instantaneous growth rate.
Because this method takes into account all observations in a period, the resulting growth rates reflect general trends that are not unduly influenced by exceptional values, particularly at the end points (World Bank (1994), p.306). An implication of using this technique is that the growth rates calculated for two consecutive sub-periods may not bracket the growth rate calculated for the longer time period covering both sub-periods.
While it may seem counter-intuitive, at first, that the growth rate for the longer period is not a weighted average of the two sub-periods, conventionally-estimated compound growth rates between two points in time (which ignore observations between these two points), may simply be a function of a large deviation from trend of GDP in the first or last year of the period, which is not reflective of the underlying potential for higher income to improve nutrition. To take a hypothetical example, suppose that GNP for 1985-90 is 100, 100, 100, 100, 100, 127.63. A straight calculation of the growth rate between the two points for 1985 and 1990 gives a 5.0% per year growth. However, fitting a regression line through the data (using the methodology described above) gives a 3.55% growth. In this hypothetical situation, if growth had been a steady 5.0% over the entire period, one could imagine a substantial improvement in anthropometry. However, nutrition improvement might not have shown up at all given the uneven way that growth occurred. Thus, 3.55% would probably be a better number to use in the analysis of effects of income growth on improvmed anthropometry.
References
Gujarati, D. (1988). Basic Econometrics. 2nd Edition. International Editions, Economics Series. McGraw Hill, Singapore.
UNDP (1993). Human Development Report 1993. Oxford University Press, New York.
World Bank (1994). World Development Report 1993. Investing in Health. Oxford University Press, New York.
