Abstract
If manufacturing matters—and if industrial policy can help develop manufacturing—that is because it creates high value added. Value added is a very popular concept in daily political and economic discussion. One hears it in the television debates and reads it in the newspaper articles; everybody wants higher value added, but few apparently are aware of what value added means technically and how it relates to the GDP. It is also a key concept inherent in the discussion in this entire book. So, this chapter digresses into the meaning of the concept and its relationship to the GDP and industrial policy.
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Notes
- 1.
It should be noted that there are growing criticisms as to whether per GDP is really a perfect measure of economic development. However, with detailed national accounts prepared by statistical agencies in every country, practically it is still the most widely used measure. Per capita income is also used as a headline measure of productivity in a country.
- 2.
Technically adjustments have to made in the calculations to account for the taxes paid to the state.
- 3.
In fact, this expression is in effect a tautology; productivity is calculated by dividing GDP (per capita) by average number of hours worked per worker.
- 4.
Barro (1990).
- 5.
Yülek (1997).
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Yülek, M.A. (2018). Value Added and GDP: The Smart Versus the Donkey. In: How Nations Succeed: Manufacturing, Trade, Industrial Policy, and Economic Development. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-0568-9_7
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DOI: https://doi.org/10.1007/978-981-13-0568-9_7
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