What is Gross Value Added - GVA
Gross value added (GVA) is a productivity metric that measures the contribution of a corporate subsidiary, company or municipality 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 is often calculated to represent the gross value added by a particular product or service or corporate unit that the company currently produces or provides. In other words, the gross value added number reveals how much money the product or service or unit contributed toward 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 a particular operation adds to its bottom line.
At the national 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. GVA can also be used to see how much value is added (or lost) from a particular region, state or province.
Gross Value Added Calculation and Example
At the national level, GVA is sometimes favored as a measure of total economic output and growth compared with gross domestic product (GDP) or gross national product (GNP). Gross value added is related to GDP through taxes on products and subsidies on products. GVA adds back subsidies that governments grant to certain sectors of the economy and subtracts taxes imposed on others.
The formula for gross value added is: Gross value added = GDP + subsidies on products - taxes on products
Where, 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