How is gross value added better than gross domestic product in economic development?

Question:

How is gross value added better than gross domestic product in economic development?

Measuring Economic Growth:

Gross value added and gross domestic product are ways to measure economic growth. Gross domestic product is the sum of final goods and services produced in an economy after adjusting taxes and subsidies. Gross value added is the value of goods and services produced in a sector minus the intermediate consumption.

Answer and Explanation:

The gross value added (GVA) is favored over the gross domestic product (GDP) in economic development because gross value added measures the economic activity more precisely. It reflects the productivity in a better way as the indirect tax is excluded in its calculation. It also gives sector-wise information, which makes it easier for implementing the required policy measures.

On the other hand, gross domestic product measures an increase in economic activity based on the increase in the collection of income tax. It includes indirect tax which may distort the production data and it does not provide sectorial data. However, the gross domestic product is a key method to measure economic development, especially when comparing incomes and progress with other countries.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
58K

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