National Income Accounting

National income is measured in terms of total earnings of the factors of production or the
total market value of all final goods and services produced by the citizens. These are
presented in terms of Gross National Product (GNP), Gross Domestic Product (GDP), per
capita income (PCI) and per capita GNP. Such are the measures of economic performance
of the nation.

The National Economic Development Authority (NEDA) is the government agency in-
charge of maintaining the national accounting.

Gross National Product (GNP)

Gross National Product (GNP) measures the market value of all final goods and services
produced by a nation’s economic resources during a specified period of time. It reflects the
economic performance of a nation.

GNP =  Pi Qi
Where Pi = price of ith commodity in the given year.
Qi = quantity of production of ith commodity for a given year.

Example:

GNP = Price Qrice + Pfish Qfish + Pmedicine Qmedicine +

Pservices Qservices + … + Pnthcommodity Qnthcommodity

GNP at current prices is the money GNP. It is obtained by multiplying the quantity of
final goods and services by the prevailing or current market prices.

Current GNP progressively increases every year. However, this does not necessarily
indicate an improving economic performance of the nation. Suppose that the quantity
remains the same, the GNP will still increase because the prices cannot be held constant
through the years. Hence, an increasing current GNP may only manifest that the prices of
the goods and services only increase or there is just an inflation.

To avoid a misleading interpretation of current GNP, the Real GNP must be used in
gauging the economic performance of the nation.

Current GNP
Real GNP = * 100%
Price Index

Price in any given year

Price Index = x 100%
Price in base year
 A price index ensures that the comparison of the GNP is based on a common base
year (usually a period of normal economic condition).

Per Capita GNP refers to the GNP share of each person if national income is divided
equally among the population of the nation.

GNP
Per Capita GNP =
Population

Table 22. Per capita GNP

Year Current GNP1 CPI1 Real GNP1 Population2 Per capita Per capita
(P Million) 2000=100 (P million) (Million) Current GNP Real GNP
2000 3,566,059 100.00 3,566,059 77 46,312 46,312
2001 3,876,603 102.26 3,791,030 79 49,071 47,988
2002 4,218,883 106.54 3,960,037 80 52,736 49,500
2003 4,631,479 112.87 4,103,364 82 56,481 50,041
2004 5,248,064 120.67 4,349,277 84 62,477 51,777
2005 5,885,050 127.10 4,630,280 85 69,236 54,474
2006 6,570,310 134.85 4,872,386 87 75,521 56,004
2007 7,274,660 145.36 5,004,613 89 81,738 56,232
1
Calcuted from the NCSO data with 1985 as base year, Economic and Social Statistics Office, National Statistical Coordination
Board
2
Based on the Projected population from 2000-2010 (Medium Assumption), NSO 2000 Census-based population

Limitations of GNP

1. It does not show the allocation of goods and services among members of the society. It
only shows the number of goods and services produced by the citizens in a given period.
In a nation where there is unequal distribution of income, an increasing GNP only
suggests that the economic welfare of the few rich people are better off. As a whole,
there is no real improvement because the many poor people remain poor.

2. GNP accounting in less developed countries is understated. Many economic

transactions especially in the rural areas are not included in the GNP accounting. These
activities constitute most of our daily activities like for instance when we ride a jeepney,
buy goods from the nearby sari-sari store or eat in the school canteen. In all the said
transactions, no official receipts are taken.

3. The evils of economic growth like pollution, congestion and dirty environment are not
reflected in the GNP.

4. GNP only measures the number of goods and services but not the quality of goods and
services.

5. Incomes or products from illegal sources are not included in the GNP.

(Reference: Fajardo, 1990)

Consumer Price Index (CPI)

 A price index is a device for combining movements of many individual prices for the
purpose of estimating the average movement of some specified group of prices. It is often
used to deflate variables expressed in money terms to take out the effect of price changes.
Also, the inflation rate is reflected in the growth of the price index.

CPI is designed to measure changes in prices of the goods and services.

Table 23. Consumer Price Index 2000-2007

Year CPI Inflation Rate (%)
2000 100.00 -
2001 102.26 2.26
2002 106.54 4.18
2003 112.87 5.95
2004 120.67 6.91
2005 127.10 5.33
2006 134.85 6.10
2007 145.36 7.79
(Year 2000 is the base year, 2000=100)

Inflation is the continuous increase in the general level of prices. The formula for
determining inflation is as follows:

CPI2 - CPI1
Inflation rate = x 100%
CPI1

Where: 2 = present year

1 = base year

To illustrate, use the table above in determining the inflation rate between 1997 and
1998.
CPI2 - CPI1 136.9 – 124.8
Inflation rate = x 100% = x
100% = 9.7%
CPI1 124.8

Gross Domestic Product (GDP)

GDP is the total market value of all final goods and services produced within the
territories of a nation in a given year. An increasing GDP suggests an improving economy.
However, it should be noted that in most third world countries whose economy is dominated
by foreigners, GDP is usually bigger. This does not necessary mean an improving economy.
It may only mean that the value of final goods and services produced by the foreigners in
these third world countries is increasing.

In the computation of GDP, the incomes derived from investments or wealth in other
countries is excluded. Whereas in the case of GNP, the incomes of the citizens earned from
abroad are included. Hence, for the third world economy, the GNP is a better indicator of
growth than GDP.

Three Approaches of Measuring GNP

 1. GNP via the Expenditure Approach – It is measured through the flow of
currently produced goods and services by accounting for all the expenditures of the
different sectors in the economy, i.e. the consumers, business, government and foreign
sectors.

The consumers spend for durable goods, non-durable goods and services. Altogether
these expenditures comprise the “Personal Consumption Expenditures”.

Expenditures of the business sectors are called “Gross Domestic

Investment”. These account for residential construction, business fixed
Investment and change in business inventories.
The government spends for national and local outlays. These are called
“Government Consumption Expenditures”.

Net Export, that is the value of export less import, reflects the foreign
sector in GNP accounting.

Table 24. Gross National Product via Expenditure Approach, 2007

Item Value
1. Personal consumption expenditures 1,059,466
2. General government consumption expenditures 86,523
3. Gross domestic capital formation or investment 239,667
a. Fixed capital formation 232,492
b. Increase in stocks 7,175
4. Exports of goods and non-factor services 648,297
5. Less: Imports of goods and non-factor services 620,328
6. Statistical discrepancy ( 46,607)
Expenditures on Gross Domestic Product 1,370,018
7. Net factor income from the rest of the world 138,600
Expenditures on Gross National Product 1,508,618
Source: National Statistical Coordination Board (NSCB)

2. GNP via Income Approach – It measures national income (GNP) through

the below-mentioned factored incomes that are earned by resource owners in current
production.

a. Compensation of employees – It includes all wages and salaries earned by

households, fringe benefits, private pensions and welfare funds.
b. Proprietors’ income – It is the net profits of unincorporated businesses and self-
employed professionals.
c. Rental income of persons - It is the income in the form of rent and royalties received
from the ownership of property.
d. Corporate profits – These include the profits of all private corporations.
e. Income from interests – It is the interests received by household and government
from capital.

Table 25. GNP via Income Approach*

 Item Value
1. Compensation of employees and entrepreneurial 1,156,385
and property income of persons
2. General government income from property and 31,484
entrepreneurship
3. Corporate income 16,194
a. corporate tax 21,304
b. corporate savings (5,110)
National Income 1,204,063
4. Indirect taxes 132,506
5. Less: Subsidies 3,993
Net National Product 1,332,576
6. Capital consumption (depreciation) allowance 176,042
Gross National Product 1,508,618
*Hypothetical example

3. GNP via Value-Added Approach or Industrial Origin – It is the difference

between the market value of all goods produced and the cost of all the goods and
materials produced by other producers. It is the net contribution of the firm to the total
value of production.

Table 26. GNP by Industrial Origin, 2007

Industry Value
1. Agriculture, Fishery, Forestry 252,010
a. Agriculture industry 250,522
b. Forestry 1,488
2. Industry Sector 442,352
a. Mining & quarrying 23,516
b. Manufacturing 317,074
c. Construction 58,805
d. Elect, gas and water 42,957
3. Service Sector 675,656
a. Trans., comm. & stor. 120,582
b. Trade 237,128
c. Finance 80,838
d. O. dwellings & r. estate 63,333
e. Private services 116,718
f. Government services 57,056
Gross Domestic Product 1,370,018
Net factor income from abroad 138,600
Gross National Product 1,508,618
Source: National Statistical Coordination Board (NSCB)