what determines the wealth, or GDP, of nations?

Wealth or GDP of Nations : A Study on the determinants

1 .0 Introduction

Comprised of personal consumption , investment , net exports and government spending , the Gross Domestic Product (GDP ) of a nation is an economic indicator which measures the services produced by the country within its boundaries . The GDP indicates the financial health of a country . Based on the soundness of the GDP the financial strength of the country is determined . The higher the GDP the nation is considered as wealthier . GDP is a macroeconomic term relating to the economy as a whole

. GDP otherwise known as National Output could be a real one or a nominal one in the perception of the macroeconomists . Real GDP takes into account the inflationary tendencies while the nominal GDP reflects only changes in prices . There are definite factors which contribute to the GDP of a nation . This details some of such determinants of the Gross Domestic Products of a nation

2 .0 Determinants of GDP

GDP being the most important measure of economic activity in a country , the Gross Domestic Product is the crossing point of three sides of the economy expenditure , output and income (Valentino Piana 2001

The GDP is composed of Effective Demand , the country 's Production Capabilities and the Income . GDP can be measured as the domestic consumption , public expenditure , investment and exports . GDP is reduced by the value of imports . GDP can also be equated either to value added over the different economic branches of the country including VAT revenue or the like labour and capital . Thus the equation of expenditure output income will always hold good as a basic definition of the gross domestic product of the country

As regards the determinants of the GDP is concerned an increase in the effective demand as a result of increase in the consumption , investment public expenditure and exports will automatically enhance the GDP of the country . This increase will however be subject to the quality and price criteria being met by the national production . If the quality and price factors are not effectively met then the imports of the country will go up which will reflect adversely on the GDP of a country

If for any reason the country is not in a position to enhance the national production for any obvious reasons , the domestic firms who work up to their full production capabilities will tend to increase the prices of commodities resulting in inflation and reducing effective demand for the products

Another determinant of GDP is the diffusion of technological and organizational innovation and advancement . This situation will have a positive impact on the productivity of the country as also on the quality of the products and services . There tend to be an increase in the value addition and additional rewards for the factors of production Thus Capital accumulation and the increase of labour quality and motivation are important ingredients for a growing GDP (Valentino Piana 2001

3 .0 Conclusion

GDP of a country provides a good measure of...