Economic growth usually has as proxies GDP growth or Home income growth. The dependent variables in my studies are gross value added or value added at factor costs.
Surely it can. However, it's crucial to deflate it (it must be in real terms) and then if the focus is your analysis on economic growth, it must be expressed in per-capita terms
Dear Prof Deidda,
Are you saying that I have to divide the real value added to the number of enterprises?
Thank you!
Marușa Beca
yes it can - as GDP is value added. But, as Luca noticed - be sure to deflate. Best.
Your model is a macro model or micro one consisting of firm level growth? Please elaborate and specify the model?
Dear Mr. Mohsin,
My model is a macro one. I want to use as explanatory variables macro variables such as FDI, education, tehnology, R&D expenditures, Public expenditures, credit rate etc. I have panel data structure - 25 countries and 8 years.
Best regards,
Marușa Beca
Hi Marusa,
I agree with Luca. You can used it but you should deflate it.
Best regards,
Zdenka
Dear Marușa Beca: In this case cross section variations are may be more important than time series. In this case as Jueshui Shi suggested, need to use correct panel data model. May be group mean model by Pedroni is useful which is dynamic panel. Researchers also use Industrial production index as a proxy for GDP along with Value added which you want to use. In your case, please check whether there is higher correlation between value added and GDP which most of the time persists. Good luck with your model and estimation.
regards
Mohsin
Not really: GDP is different from value added because there are taxes and subsidies (see http://www.ons.gov.uk/ons/guide-method/method-quality/specific/economy/national-accounts/gva/relationship-gva-and-gdp/gross-value-added-and-gross-domestic-product.html). Empirical difference, however, should not be too large.
Hello, Marusa! The answer is "yes":
GDP = sum (gross values added) + taxes – subsidies on products –> see Lequiller, F., Blades, D. (2014), Understanding National Accounts, second edition, OECD Publishing, p. 19. As underlined by Sergey Popov, empirical differences are not very large.
Best regards,
Monica
Value added is a weak form of a proxy to economic growth. This is because it is intermediary, and involves various processes that include imported inputs among other things. I would not recommend its use as a proxy. However, depending on the nature of your study, you might include it.
Pay attention to the definition of value added. It can be valuated at:
factor cost (includes all the subsiedies and exclude all the taxes)
producer price (includes all the taxes and excludes all the subsidies)
basic price (are prices before taxes on products are added and subsidies on products are subtracted)
See UN system of national account: par. 2.63: “The preferred method of valuation of output is at basic prices"
All the above answers stressed correctly the limits and drawbacks of Value Added to measure the level of economic activity and, indirectly, thorough the use of variation or growth rate, the growth of economic activity.
However one should also take into account that VA data are often more common and reliable in situation in which GDP or income data are not available (i.e. at sub-national level). Furthermore, if the scope of your analysis is on short run growth then, if taxes and subsidies do not move fast, the actual difference between different production variable is almost negligible
Follow the answer of https://www.researchgate.net/profile/Sergey_Popov7
Yes.Especially if the growth concerned is services-driven and linked to increasing liberalization.
https://www.researchgate.net/publication/228289656_Can_Total_Factor_Productivity_Explain_Value_Added_Growth_in_Services
Article Can Total Factor Productivity Explain Value Added Growth in Services?
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