# Module H4 Session 2 Guidance for Trainers

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```					                           Module H4 Session 2 Guidance for Trainers

Module H4 Session 2 Guidance for Trainers

Discussions

Discussion 1

     In Table 3, what is the real output figure for 2007? A. 1928 million US\$
     What is the percentage increase in real output between 2005 and 2007? A. 11%
     Roughly how much of the percentage increase in nominal output between 2005 and
2007 is attributable to price increases? A. Nominal output increased by 17.0%,
while real output increased by 11.4%, so about one-third of the increase in nominal
output is attributable to price increases.

Exercises

Exercise 1

For students in countries using the fixed base year method, the aim is to find out what are
the problems associated with choosing base years, why new base years are often needed
after a period of several years, and what are the implications of ‘rebasing’. For those in
countries using the annual chain-linking method, the aim is to understand the method and
why it was chosen in preference to the older fixed base year approach. The following
definition adapted from Soo and Charmokly (2003) may be helpful to trainers:

In annual chain-linking, the base year is updated every year as opposed to the fixed
base method where the base year is updated every five years. Calculations are carried
in previous years’ prices (PYP) and the aggregated PYPs are chain-linked together to
give ‘chained volume measures’ (CVM).

Chained Volume         This is the term which used to describe components of real
Measures (CVM)         GDP. UK GDP is now given in CVM rather than ‘constant
prices’ associated with a base year.

Previous Years’        Values in previous years’ prices (and referenced to the previous
Prices (PYP)           year) as opposed to values in current or constant prices.

Soo, A. and Charmokly, Z. (2003): ‘The application of annual chain-linking to the Gross
National Income system’ in Economic Trends, Office for National Statistics, April 2003.
Available at: www.statistics.gov.uk/articles/economic_trends/ETApr03Soo.pdf

SADC Course in Statistics                           Module H4 Session 2 Guidance – Page 1
Module H4 Session 2 Guidance for Trainers

Exercise 2

The students should use the links to tables of GDP and GNI by country on the page
introducing Quick Reference Tables in the Data section of the World Bank website1
http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK
html to construct a table like the one below. You could suggest that they include the
countries which I have listed in the example table, or get the students to choose for
themselves. Ask them to include their own country/ies.

Example table: GNI and GDP for selected countries, 2006

GNI, Atlas method    GDP (million
(million US\$)        US\$)              GNI/GDP
USA                      13,446,031        13,201,819    102%
Japan                     4,899,966         4,340,133    113%
S Africa                    255,333           254,992    100%
Chile                       114,885           145,841    79%
DR Congo                     7,742              8,543    91%
Mozambique                   6,924              7,608    91%
Mauritius                    6,833              6,448    106%

You should then ask the students what might be the reasons for big differences between
GNI and GDP. In order to guide the discussion, you should be aware that normally:

    GNI > GDP i) when residents have substantial investments abroad from which

1
This link was current at July 2007. If it has changed, use a search engine to find it.

SADC Course in Statistics                               Module H4 Session 2 Guidance – Page 2
Module H4 Session 2 Guidance for Trainers

they receive income (as in Japan, which has many multinational companies
operating abroad), and/or ii) when there are large numbers of migrant workers
abroad sending home remittances (as in Bangladesh), and/or iii) if the country is
receiving large inflows of foreign aid.
   GNI < GDP when the country has attracted large amounts of foreign investment,
so income is flowing out of the country to foreign investors (as in Chile).

If you have time, it would be good to ask the students to investigate the case of their own
country – if you/they can obtain a breakdown of income inflows and outflows.

Note that:

(a) in some cases, there may be large inflows and large outflows which are cancelling each
other out so that GNI and GDP are similar (as in El Salvador). Alternatively, GNI and
GDP may be similar simply because there is little income flowing in or out!

(b) part of the differences may be caused by the use of the Atlas method to measure GNI.

The third part of the exercise asks students to think about why GDP is more commonly
used as an indicator by policymakers than GNI. This should be an open discussion. Bear in
mind that GDP is essentially a measure of what the country produces. GNI on the other
hand, is a measure of the country’s ‘wealth’ – even if some of it is produced abroad rather
than within the country. This alone may be enough to justify preferring GDP as a more
‘fundamental’ measure: it reflects the underlying strength of the economy in terms of
production. With regard to GNI, if GNI > GDP, perhaps there may be questions about
the sustainability of the position? And if GNI < GDP, perhaps the country’s leaders prefer
to play down how much of the income from national production is going abroad!

Exercise 3

This exercise needs no special guidance. The aim is to get the students to understand what
the PPP approach does to GDP and GDP per capita figures, and to think carefully about the
implications of using PPP. Is it a useful approach? Is it too complicated?

SADC Course in Statistics                          Module H4 Session 2 Guidance – Page 3

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