Can Gross Domestic Product (GDP) Figures be Trusted?
GDP (Gross Domestic Product) The formula to calculate GDP is this: GDP (Gross Domestic Product) = Consumption + investment + government expenditure + net exports (exports minus imports) = Wages + rents + interest + profits + non-income charges + net foreign factor income earned But the GDP figure is vulnerable to “creative accounting”: 1. The weight of certain items, sectors, or activities is reduced or increased in order to influence GDP components, such as industrial production. Developing countries often alter the way critical components of GDP like industrial production are tallied. 2. Goods in inventory are included in GDP although not yet sold. Thus, rising inventories, a telltale sign of economic ill-health, actually increases the GDP! 3. If goods produced are financed with credits and loans, GDP will be artificially HIGH (inflated). 4. In some countries, PLANS and INTENTIONS to invest are counted, recorded, and booked as actual investments. This practice is frowned upon (and la
