What is 'Gross Value Added - GVA'
Gross value added is a productivity metric that measures the contribution to an economy, producer, sector or region. Gross value added provides a dollar value for the amount of goods and services that have been produced, less the cost of all inputs and raw materials that are directly attributable to that production.
BREAKING DOWN 'Gross Value Added - GVA'
At the company level, this metric could be calculated to represent the gross value added by a particular product or service the company currently produces or provides. In other words, the gross value added number reveals how much money the product or service contributed towards meeting the company's fixed costs and potentially creating a bottom-line profit. Once the consumption of fixed capital and the effects of depreciation are subtracted, the company knows how much net value the operation adds to its bottom line.
On the country level, gross value added is the output of the country less the intermediate consumption, which is the difference between gross output and net output. Gross value added is important because it is used in the calculation of gross domestic product (GDP), which is a key indicator of the state of a nation's total economy.
Gross Value Added Calculation and Example
Gross value added is related to GDP through taxes on products and subsidies on products. The formula for gross value added is:
Gross value added = GDP + subsidies on products - taxes on products
GDP = private consumption + gross investment + government investment + government spending + (exports - imports)
As a very simplified example of calculating gross value added, consider the following data for a fictitious country:
Private consumption = $500 billion
Gross investment = $250 billion
Government investment = $150 billion
Government spending = $250 billion
Total exports = $150 billion
Total imports = $125 billion
Total taxes on products is 10%
Total subsidies on products is 5%
Using this data, the gross value added can be calculated. The first step is to calculate the GDP:
GDP = $500 billion + $250 billion + $150 billion + $250 billion + ($150 billion - $125 billion) = $1.175 trillion
Next, calculate the subsidies and taxes on products. For simplicity's sake, assume that all private consumption is consumption of products. In that case, subsidies and taxes equal:
Subsidies on products = $500 billion x 5% = $25 billion
Taxes on products = $500 billion x 10% = $50 billion
With this, the gross value added can be calculated as:
Gross value added = $1.175 trillion + $25 billion - $50 billion = $1.15 trillion