economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

, gross value added (GVA) is the measure of the value of

goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...

and services produced in an area, industry or sector of an

economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...

. "Gross value added is the value of output minus the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector; gross value added is the source from which the primary incomes of the System of National Accounts (SNA) are generated and is therefore carried forward into the primary distribution of income account."

Relationship to gross domestic product

GVA is a very important measure, because it is used to determine

gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...

(GDP). GDP is an indicator of the health of a national economy and economic growth. It represents the monetary value of all products and services produced in the country within a defined period of time. "In comparing GVA and GDP, we can say that GVA is a better measure for the economic welfare of the population, because it includes all primary incomes. From the point of view of the society as a whole GDP, despite its disadvantages, is probably a better measure for economic growth and welfare, because it includes also NET INDIRECT TAX (indirect taxes minus subsidies) which are the financial basis for the collective consumption of the society." The relationship between GVA and GDP is defined as: :GVA= GDP + subsidies on products – taxes on products As the total aggregates of taxes on products and subsidies on products are only available at whole economy level, Gross

value added In business, total value added is calculated by tabulating the unit value added (measured by summing unit profit sale price and production cost">Price.html" ;"title="he difference between Price">sale price and production cost], unit depreciation ...

is used for measuring

gross regional domestic product Gross regional domestic product (GRDP), gross domestic product of region (GDPR), or gross state product (GSP) is a statistic that measures the size of a region's economy. It is the aggregate of gross value added (GVA) of all resident producer un ...

and other measures of the output of entities smaller than a whole economy. Restated, :GDP at factor cost = gross value added (GVA) at factor cost. :GDP at factor cost = value of the final goods and services produced within the domestic territory of a country during one year by all production units inclusive of depreciation. :GDP at market price = GDP at factor cost + net indirect taxes(indirect taxes- subsidies). :GVA at factor cost = value of output (quantity * price) - value of intermediary consumption.

GVA at different levels

GVA can be used for measuring of the contribution to GDP made by an individual producer, industry or sector. For instance, to analyze the productivity of the market sector, one can use GVA per worker or GVA per hour. The measure preferred by the Organisation for Economic Cooperation and Development (

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...

) in the Productivity Database is GVA per hour. At the company level, GVA refers to the

net income In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest ...

of a produced particular good. "Once the consumption of fixed capital and the effects of depreciation are subtracted, the company knows how much net value a particular operation adds to its bottom line. In other words, the GVA number reveals the contribution made by that particular product to the company's profit."

Disadvantages of GVA

* Comparison over time is difficult.

Advantages of GVA

* Internationally comparable figure * Better market condition projection globally, especially in case of FIIs

Conclusion

Over-simplistically, GVA is the grand total of all revenues, from final sales and (net) subsidies, which are incomes into businesses. Those incomes are then used to cover expenses (wages & salaries, dividends), savings (profits, depreciation), and (indirect) taxes. GVA is sector specific, and GDP is calculated by summation of GVA of all sectors of economy with taxes added and subsidies are deducted.

References