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Decomposition of GDP growth in European countries; different methods tell different stories

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  • Henk Kranendonk

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  • Johan Verbruggen

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    Abstract

    The composition of economic growth can be analysed in two different ways. In the 'traditional method' for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this 'import-adjusted method' is more complex than the 'traditional method', it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates. The methodology for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six individual European countries and the euro area, the paper shows that applying the alternative methodology provides rather a different economic story.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 158.

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    Date of creation: Jan 2008
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    Handle: RePEc:cpb:docmnt:158

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    1. Martin Mellens & Herman Noordman & Johan Verbruggen, 2007. "Re-exports: international comparison and implications for performance indicators," CPB Document 149, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Henk Kranendonk & Johan Verbruggen, 2005. "How to determine the contributions of domestic demand and exports to economic growth?," CPB Memorandum 129, CPB Netherlands Bureau for Economic Policy Analysis.
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    Cited by:
    1. Mustapha K. Nabli, 2011. "The Great Recession and Developing Countries : Economic Impact and Growth Prospects," World Bank Publications, The World Bank, number 2539, July.
    2. Bos, Frits, 2008. "Uses of National Accounts; History, International Standardization and Applications in the Netherlands," MPRA Paper 9387, University Library of Munich, Germany.

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