As described in earlier sections,
measures of income, such as national or disposable income are generally preferred, in
theory, to GDP, in analyses of well-being both in nominal and real terms. However there
are some specificities related to the calculation and associated interpretations of real
income, as opposed to real GDP say, that are worth mentioning.
Whereas GDP can be measured
relatively simply in volume terms because price and quantity components exist, at
least in principle, for all of the flows in GDP (via the expenditure or production
approach), this is not the case for the additional income components that reflect the
difference between GNI say and GDP; which cannot be decomposed into price and
quantity dimensions. These flows can be measured in
"real" terms through the use of an appropriate price
index that measures their real purchasing power in relation to a selected basket of
goods and services. But moving from real GDP to real GNI is not simply a case of
choosing an appropriate price index to deflate the additional income components.
Another adjustment that takes account of changes in the terms
of trade is needed; which is only relevant for real measures.
Gross Domestic Income (GDI), as
opposed to Gross National Income, in current prices is exactly equal to GDP. But if the
prices of a country's exports rise faster (or fall more slowly) than the prices of its
imports (that is, if its terms of trade improve) fewer exports are needed to pay for a
given volume of imports. Thus, an improvement in the terms of trade makes it possible for
an increased volume of goods and services to be purchased by residents out of the incomes
generated by a given level of domestic production. This improvement (or otherwise,
e.g. if the prices of imports rise faster than
exports), known as trading gains and losses from changes in the
terms of trade, reflects the difference between real GDI and real GDP. It
follows that it also forms part of the difference between real GDP and real national
income (GNI and NNI) and disposable (and adjusted disposable) income.
These trading gains or losses are
equal to the current trade balance deflated by a single price index, minus real exports,
plus real imports (where estimates of real exports and real imports are consistent with
those used in real GDP). And so real GDI is equal to final consumption (households, NPISH
and general government final consumption) + real gross capital formation + the
"real" trade balance.
The comparability of current
price measures of income is described in the previous sections. The choice of the single
price index used to deflate the current trade balance varies across countries. The SNA
recommends that the choice of the price index is left to statistical authorities to
decide on the basis of national circumstances. Three approaches are commonly used. The
first is to use either the overall import (or export) price index. The second is to use
a weighted average of the overall import and export price indices. The third method,
which is the approach used by many countries for simplicity, is a general price index
(typically this is the implied deflator for gross domestic final expenditure). The
advantage of this third approach is that the income components that reflect the
difference between GNI (and other income measures) and GDP can also be (and usually are)
meaningfully deflated using this same general price index.
Eurostat (2001), Handbook on Price and Volume Measures in National
Accounts, Eurostat, Luxembourg.
Lequiller, F. and D. Blades
(2007), Understanding National Accounts, OECD
OECD (2000), System of National Accounts, 1993 - Glossary, OECD
UN, OECD, IMF and Eurostat
(eds.) (1993), System of National Accounts 1993,
United Nations, Geneva, http://unstats.un.org/unsd/sna1993.
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|6.1. Real net national income index
|6.1 Real net national income