O GDP - Gross Domestic Product – is the sum of the value of all final goods and services performed in a given location over a specific time. This data is considered the main indicator of the level of economic development, as its growth means that companies and people are producing more and, consequently, generating more income.
According to the World Bank, the planet's GDP, that is, the sum of the wealth produced in all countries, is US$71.67 trillion. Of this total, US$15.6 trillion belongs to the United States alone, the country with the largest Gross Domestic Product today. Brazil is the seventh largest, with US$2.19 trillion.
The purpose of calculating the GDP is to establish a measure of the wealth that was produced in the country in order to compare the level of economic growth with other locations and highlight possible diagnoses of structural and financial. In addition, the GDP calculation provides information on the different sectors, demonstrating those in which there is greater income generation and the which have less weight, in addition to stating any problems in some activities, demanding public actions to correct these difficulties.
For example: the GDP of a certain country grew, but it was noted that the industrial sector had a significant drop. Given this information, the government and experts will try to investigate the problem of industrial production, analyzing data such as the level of employment in this sector, the generation of profit by companies, among others information. With that, there will be the possibility of adopting measures to recover the economy and solve this problem.
As we already stated at the beginning of this text, GDP is calculated from the production of goods and services. About goods, everything that is produced is counted, not what is sold, that is, everything that is produced in agricultural, industrial or manufactured items goes into the account. About services, all activities that have some remuneration are included, such as repairs, medical care, text production, among others.
However, there are some items that are excluded to avoid data duplication, and this includes both those goods that were once traded as the raw materials used in the manufacture of other products. A house, for example, is accounted for in the GDP at the time of its construction, not being included in the calculations when it is resold to other owners. In addition, the materials used in the construction of this house were manufactured from different raw materials, such as wood, cement and others. Thus, these products used in this construction are not counted, as their price is already built into the value of the house.
While GDP is an important concept, it has limitations and does not necessarily indicate that a country is really rich or poor. For example: the Brazilian Gross Domestic Product is much larger than Switzerland's, but this is because the national territory and population are much larger in relation to the Swiss.
For this reason, there is also the so-called GDP per capita, which is nothing more than the value of the GDP divided by the population. Thus, according to the example above, Brazil, even with a larger economy, the proportion of this wealth in in relation to its population is much lower than that of Switzerland, which, consequently, has a better standard of life.
It is worth remembering, however, that per capita GDP also has its limitations. That's because it doesn't take into account the distribution of wealth. It is a simple arithmetic average, in which the total wealth produced is calculated divided by the number of people, not revealing the relations of inequality, in which a smaller number of people have a lot of wealth and a greater number of inhabitants live in conditions of poverty.
Despite all these details, GDP and GDP per capita are important notions to reveal how much an economy of a given location is dynamic and if it allows for social and structural.
By Rodolfo Alves Pena
Graduated in Geography