How GDP serves as geoeconomics tool?

Gross Domestic Product (GDP) is the sum total of financial value of products and services made within a period, generally one calendar year. Therefore, the basic parameters are realized value, certain period and the domestic horizon. How to make GDP serve a geoeconomics tool?

Here we have to depart from the aspect of realized value which invariably connotes the existence of a market and that products and services are produced and consumed on that basis. Soviet Union changed this particular parameter by valuing non-market oriented products & services that are chiefly listed under security of the country and the welfare of the citizens therein. For example, defence & security related products as well as social overheads such as health, education and environmental issues are treated as non-market products & services. This way GDP in the times of Soviet Union was indeed colossal. In turn it helped her to project geoeconomics power.

In general there are four components of GDP that merit attention. Two of them are consumption by the private citizen and business investments sourced from private sector. In the time of Soviet Union the state also became one of the citizen in the sense it consumed large value of products & services generated within as well as public investments made by the state in the broader sense of protecting and nurturing state as an organization.

In addition we get government expenditure as separate column where such expenditure is targeted at poverty alleviation, fiscal management and balancing monetary policies regarding inflation & economic growth. The last item is the net export value which is arrived at after deducting the import cost from the export revenue.  

In the case of advanced economies consumption expenditure at higher percentage of GDP gives geoeconomics power because in order to supply goods & services for public, state resorts  to such expenditure in order to  encourage domestic production in the first place and if that is not adequate allow imports from abroad to quench the thirst of the consumers.  Take the case of America where private consumption accounted for 67.6 % of her GDP.

In planned economies such as China this works slightly in an altered manner. Manufacturing is the cornerstone of China's economy and this sector's added value accounted for 26.2 percent of China's total GDP. Here the added value is computed by deducting the import as well as processing cost within China from the gross value of production. Interestingly, China scores highest marks at about 26.2% of added value in her GDP profile.

The bottom line is private consumption in USA and added value in manufacturing in China facilitate both of them projecting big time power in geoeconomics!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist