Vietnam: What is GDP? What are the differences between GDP and GNI?

Vietnam: What is GDP? What are the differences between GDP and GNI? (Internet image)

What is GDP?

GDP stands for Gross Domestic Product.

Currently, according to Decree 97/2016/ND-CP, gross domestic product is defined as the value of all the final goods and services produced by the economy during a given time period (quarter or year).

This means that the value of intermediate goods or services used for making finished products is not counted. GDP represents the final result of production activity created by resident institutional units within a specified economic territory of a country.

Based on this concept, it can be seen that GDP will count all value of all the final goods and services produced by the economy in the territory of Vietnam, regardless of whether it is an individual or legal entity of Vietnam or a foreign country.

GDP can be generally viewed in different ways:

- Consumption (expenditure) view: GDP is the aggregate demand of an economy, consisting of household final consumption, government final consumption, asset accumulation, and difference between imports and exports.

- Income view: GDP is the sum of compensation of employees generated by their participation in production, indirect taxes, depreciation of fixed assets used in production and operating surplus within a given time period.

- Production view: GDP equals the gross output value minus intermediate consumption.

Structure of gross domestic product (GDP)

Structure of gross domestic product refers to the proportion of value added which is created by economic activities/ groups of economic activities and product taxes minus product subsidies, economic sectors, etc. to the gross domestic product. Structure of gross domestic product shall be calculated at current prices.

The proportion of GDP contribution by economic activities (group of economic activities) or economic sector shall be calculated according to the following formula:

Where:

Ki: Composition of ith economic activity, group of economic activities and economic sector;

Ii:  Value added of ith economic activity, group of economic activities and economic sector;

Regulation on green gross domestic product (Green GDP) in Vietnam

According to Decree 97/2016/ND-CP, green GDP refers to the remaining part of GDP after expenses incurred by treatment of waste substances discharged from production, consumption, and by natural resource depletion and environmental damages due to economic activities.

Calculation of green GDP, otherwise known as environmental accounting, in the System of National Accounts (SEEA) is a step in establishing the complete UN system of national accounts.  The green GDP indicator is calculation on the basis of the method for calculation of GDP in the system of national accounts.

Green GDP = GDP - Ω

Ω: Expenses incurred by treatment of wastes, consumption of natural resources by economic activities, including:

- Expenses incurred by treatment of wastes discharged from manufacturing and consumption activities that need to be treated;

- Value of production of natural resource extraction industries;

- Land-use costs.

Differences between GDP and GNI

NationaI income is defined as an indicator reflecting primary income results produced from ownership factors of a country participating in production operations within the territory of that country or abroad during a specified time period, usually a year.

GNI is a balancing indicator of the primary income distribution account.  Therefore, calculation of this indicator requires formulation of production accounts and income generation accounts, or is based on the GDP and relevant indicator.

**At current prices

Where:

- (Net) difference between income receivables and payables of employees from or to abroad represents the residual part of the sum of income from salaries, wages (in cash or in kind) and other incomes having the nature of compensations received by Vietnamese workers and employees permanently residing abroad from non-resident production organizations or population units - (minus) the part of expenditure on remuneration paid by non-resident production organizations or population units to foreign workers and employees permanently residing in Vietnam;

- The difference between property income received from abroad and property income paid to abroad represents the remaining part of property income received by resident Vietnamese units or inhabitants from abroad (from non-resident units and inhabitants) – (minus) property income of non-resident Vietnamese units and inhabitants.

Property income or expenditure is composed of the followings:

+ Income or expenditure related to profits from foreign direct investments;

+ Income or expenditure related to profits from investments in financial instruments, such as shares, stocks and other valuable papers and financial instruments;

+ Income or expenditure related to profits generated from rental, leases, use rights, patents, copyrights, trademarks, mining rights incidental to production and lease of land, airspace, territorial waters and concessions, etc.

** At constant prices

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE