MIL OSI Translation. Region: Russian Federation –
By the level of GDP and GRP, one can assess the situation in the economy and learn about the standard of living of a country or region. Read the mos.ru article on how the calculations are made and what they affect.
Save savings, invest wisely, close mortgages and monitor interest rates – it’s hard to imagine a resident of a modern metropolis without basic knowledge of economics. Mos.ru begins a series of publications “Moscow Economy in Simple Language”. We are talking about GDP and GRP.
How GDP is calculated
The key indicator for the economy of each country is the gross domestic product (GDP). This is the total cost of all goods and services that are produced in the state for the year. A prerequisite is that production must be located within the country. If a citizen does business in another country, his goods and services do not increase the domestic GDP and therefore are not counted in it. Transfers from the budget as aid to GDP do not apply either. Only officially registered transactions are included in the gross domestic product.
Gross domestic product is such an important macroeconomic indicator that its author, Simon Kuznets, received the Nobel Prize. The dynamics of GDP helps scientists and analysts to understand whether a country is experiencing economic growth or, conversely, a recession. The gross domestic product also affects the exchange rates on the stock exchange.
Example. A resident of Moscow registered as an individual entrepreneur and bakes custom-made cakes. She keeps records and submits it to the tax authorities, these figures will be included in the gross domestic product.
All products in the economy are divided into final (not intended for further processing or resale) and intermediate (costs of raw materials, components, rent, goods for resale, etc.). When calculating GDP, only the cost of the final product is taken into account.
Example. Decorative finishing stone is mined in the quarry. It is then bought by builders, who in turn sell it to clients to decorate offices or homes. It is this final value of the goods that will be used to calculate the gross domestic product.
GDP is indicated both in national currency (in Russia – in rubles) and in US dollars. If the GDP is expressed in dollars, it is easier to compare it with the GDP of other countries in the world.
By the way, by the end of 2019, the Russian Federation entered the top 10 countries with the largest gross domestic product in US dollars in terms of purchasing power and ranks sixth after China, the United States, India, Japan and Germany.
There is real and nominal GDP. The nominal is the aggregate of the gross products of all enterprises in the country at the prices of the current year. This is the simplest calculation without taking into account inflation: it does not reflect the real dynamics and does not allow comparing the indicators of different countries.
Real GDP is more informative as it takes into account inflation. The indicator can be used to analyze the dynamics of the economic situation in the country and compare with the indicators of other countries.
You can often hear the expression “GDP per capita”. This indicator is calculated simply: the total amount of gross domestic product is divided by the number of citizens of the country.
GDP is calculated taking into account all sectors of the economy. Key among them are energy, extraction of natural resources, agriculture, construction, industry, transport, healthcare, education, trade, and finance. A breakdown by industry allows us to understand the weaknesses and growth areas in the national economy.
GRP. What is the difference?
Gross Regional Product (GRP) is the value of all goods and services that are produced in a particular region. It is very similar to the gross domestic product, but if you add up the GRP of all regions of Russia, then the total will not be the country’s GDP. This is due to the fact that some industries are difficult to completely relate to a specific region, such as the defense industry or banking.
The gross regional product helps to see the economic situation at a particular point in the country and understand which industries can be considered leading for the economy of a particular region. In Moscow, the largest part of the GRP is made up of wholesale and retail trade (28.6 percent), manufacturing (16.2 percent), real estate (9.6 percent), professional, scientific and technical activities (8.2 percent). That is why the city authorities pay a lot of attention to these areas. And, for example, the low share of agriculture in the capital’s GRP (0.1 percent in 2018) suggests that Moscow is not an agricultural region.
The structure of the GRP of a megalopolis, as a rule, reflects the needs of residents of a large city – a noticeable share of services to the population (health care, education and housing and communal services), infrastructure industries (transport, construction), and various industrial production. Megacities, unlike monotowns and tourist centers, rarely have a certain specialization, so the structure of their gross regional product is quite balanced.
It is also worth noting that in a number of states the concept of GRP is absent. There is the gross domestic product of a country and the gross domestic product of a region or metropolis.
In 2018, the largest contribution to the growth of Moscow’s GRP was made by manufacturing (0.9 percentage points) and activities in the field of information and communications (0.8 percent). The change in the structure of the regional product shows which areas are developing faster and which ones are sagging. The indicator serves as a guide for budget allocation and planning of national projects.
In general, GRP reflects the economic potential of the city. The economy of Moscow is the largest among the subjects of the Federation in terms of GRP and is comparable to the level of European cities. According to the Analytical Center of the Moscow Government, in 2018 the GRP of the capital amounted to about 210 billion euros (in constant 2015 prices). Based on the report of the analytical agency Oxford Economics, this is comparable to the GRP of Madrid and Paris (about 230 billion euros), and higher than the GRP of Milan (about 175 billion euros), Barcelona (just over 164 billion euros), Rome (159 billion euros) and Zurich (138 billion euros).
If we switch to the national currency, then in 2018 the Moscow GRP amounted to 17,881.5 billion rubles, in per capita terms – 1423.6 thousand rubles.
It is important to assess not only the level of the gross regional product, but also its dynamics. If the GRP grows, it means that the economy is working well and the city is developing: new industries and jobs appear, and the income level of the population is growing. So, in 2018 in Moscow, the GRP growth was three percent.
EDITOR’S NOTE: This article is a translation. Apologies should the grammar and or sentence structure not be perfect.