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How GDP Grows by using Local products

How GDP Grows by using Local products

Wherever we go we see window decals as “Buy Local” nowadays, right? What is the true meaning behind that? You might think it’s for their business growth. Yes, probably right but there is nothing wrong in that. The majority of the GDP (Gross Domestic Product) growth depends on local business.

GDP measures the monetary value of the final goods and services—that is, those that are bought by the end consumer, produced in a country in a given period like a quarter or a year.

How GDP Grows by using Local products

GDP counts all of the output generated within the borders of a country. It is composed of goods and services produced for sale in the market and also includes some nonmarket production and sales, such as education or defence services provided by the government. An alternative concept, gross national product (GNP), counts all the output of the residents of a country. So, if a US-owned company has a factory in India, the output of this factory would be included in Indian GDP, but for the US it will be considered as GNP.

Not all productive activity is considered in GDP. For example, unpaid work such as volunteers and black-market activities are not included because they are difficult to track, measure and value accurately. That means, for example, that a baker who produces a loaf of bread for a consumer would contribute to GDP, but would not contribute to GDP if he baked the same loaf for his family or for himself (although the ingredients he purchased would be considered).

How GDP Grows by using Local products

Moreover, GDP (Gross Domestic Product) takes no account of the “wear and tear” on the machinery, buildings, and on the capital stock that is used in producing the output. If the depletion of the capital stock, called depreciation, is subtracted from GDP we get a net domestic product. Theoretically, the Gross Domestic Product can be viewed in three different ways:

  • The production method sums to the total “value-added” at every stage of manufacturing or service, where value-added is defined as total sales minus the value of intermediate inputs into the production process. For example, eggs would be an intermediate input and puffs is the final product; or developer services would be an intermediate input and the building is the final product.
  • The expenditure method sums up the value of purchases made by end-users - for example, the consumption of food, medical and televisions services by households; the investments in machinery by organization and companies, and the purchases of goods and services by the government and also foreigners.
  • The incomes generated by productions sums the income methods approach in the company - for example, the compensation employees receive and the operating surplus of companies roughly sales fewer costs.

If GDP wants to say something it will be like “We rise by lifting local business”. Yes, you can relate this to a famous quote of “We rise by lifting others”. So, if you see a decal of “Buy Local”, you can contribute to its future and play a crucial role in the growth of the nation's GDP and the Textile industry is biggest in India.


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