GDP comparisons

GDP may be compared to another GDP number, or to something else. Comparisons may be made using total GDP of a country (or region) or per capita GDP.

If you are comparing GDP over time, the adjustment needed is for inflation, and adjusted numbers are easy to find. It is usual to use an especially calculated inflation rate, called the GDP deflater, which differs from other measures such as those based on consumer prices.

The other common adjust is for comparing GDP across countries when the intent is to look at standards of living and the value of incomes. IN this case per capita GDP at purchasing power parity is commonly used.

What is often done incorrectly is the comparison of GDP with other numbers: for example when considering how big an industry is compared to a country. AT a company or sector level the numbers most comparable to GDP are bottom line profits and value added. The choice depends on what you are trying to do.

If the question you are answering is “how much does this contribute to the economy?”, then you probably want to use value added. It tells you how much the company (or sector) generates for shareholders, employees and the government. If the question is how much of the economy goes to the owners of the company then you probably need to look at post-tax profit. Bear in mind that both comparisons are complicated when companies operate in more than once country.