Methodology For Decomposition Of Gross Domestic Product To The Components Of Final Demand And Application For Croatian Economy

The aim of the paper is to provide a systematic overview of the methodological basis for the decomposition of gross domestic product on final demand components and the application of the presented model to the Croatian economy. The decomposition of the gross domestic product is based on the input-output model. The conventional approach used in calculation of the contribution of individual components of final demand treats imports as an independent variable. However, the alternative model, proposed by this research, distribute imports to the components of the final demand that directly and indirectly induce it. Proposed approach provides a more reliable insight to the actual contribution of each component of final demand. The application of the methodology for the decomposition of gross domestic product to the components of final demand has been empirically applied to the Croatian economy. Based on the results of the analysis, it can be concluded that exports and investments are components of final demand with the highest import content. On the other hand, the lowest import content is found for the government expenditures for final consumption. The results imply that a new model of economic growth based on the growth of exports and investment in gross fixed capital necessarily results in a more intense international integration of the Croatian economy. Limitations of the research arise from the application of the standard assumption used in input-output analysis on constant technological coefficients. The contribution of the paper is related to systematic presentation of a methodological approach that enables a more reliable quantification of the contribution of individual components of the final demand in relation to the conventional approach which is usually used.