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What Is Global GDP?

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  • Written By: John Markley
  • Edited By: Melissa Wiley
  • Last Modified Date: 08 November 2016
  • Copyright Protected:
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Global GDP, or gross domestic product, is a measurement of the value of all economic output on the planet during a particular year. It is the total market value of all goods and services produced during the relevant time. Growth in gross domestic product is commonly used as a measure of economic growth. As of 2010, the global GDP is estimated to be about 74.5 trillion US Dollars (USD).

Statistics for global GDP are estimates, because directly documenting the value of every good and service produced on Earth is impossible. Calculations of GDP can be based on estimates of total expenditures, total income, or total value added during the process of production. Statistics for the gross domestic product of individual nations are usually compiled by a body of the national government of that country, such as the Bureau of Economic Analysis in the United States.

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Determining global GDP is complicated by the difficulty of comparing the GDP of different countries. This can be problematic because the exchange rates of different currencies change over time, which means that the gross domestic product of one country as measured in the currency of another country can fluctuate due to shifts in the exchange rate without changes in actual economic activity. This is compensated for by a method called purchasing power parity (PPP), which calculates how much the same set of goods would cost in different countries in their own currencies to get a better idea of how much a given amount of each currency can buy and make international comparisons more relevant.

Using GDP alone as a measurement of prosperity can be misleading. For example, if property is damaged or destroyed by war, crime, or natural disasters, economic output produced to repair or replace whatever was damaged or destroyed counts toward GDP in the same way as any other productive economic activity. If economic activity increases in the aftermath of the destruction because of an increased demand for goods and services to repair the damage, the destruction will result in an increase in the global GDP despite the fact that the total amount of wealth in the world was actually decreased. Something similar applies to economic activity that occurs on an ongoing basis in response to harm or threats of harm to people or property, such as medical treatments for illnesses, protection from crime, or psychological counseling for victims of trauma. If the problems that make these goods and services valuable were ameliorated or eliminated, the decline in production of these goods due to decreased demand would be counted as a decrease in GDP.

Measurements of global GDP also exclude some productive activities. GDP statistics are based on data compiled by governments, so underground or black market economic activity, which can be a significant part of many people's economic lives in some parts of the world, is not included. The market value of goods and services that are not sold for money are also excluded, so events that result in fewer monetary transactions but do not affect actual productive output, such as more widespread use of free open-source software or an increase in the number of people who mow their own lawns instead of hiring someone else, would appear as a decline in GDP. GDP also leaves out changes in the quality of items; for instance, a personal computer worth $2,000 USD, adjusted for inflation, in 1995 would add just as much to that year's GDP as a computer worth $2,000 USD in 2011 adds to the 2011 GDP, despite the fact that the 2011 computer has greatly superior capabilities.

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