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Export – Import

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Please have a look at the graph of US GDP components. Please keep in mind that

GDP  =  Personal Consumtion Expenditure (PCE) + Gross Private Domestic Investment (GPI) + Government Consumtion Expenditure and gross investment (GCI) + Exports – Imports (Net exp)

 gdp comp

We observe that for entire period 1984 to 2009 net export for US has been negative. In fact this has been the case for last fifty years. Till last year people had started arguing that the best way to run an economy is to import and consume, and do nothing.  USA the most economically strong country was doing so. Though from the data, till last year also, this shouldn’t have been concluded. From the graph we see that for last 25 years personal consumtion expenditure has hovered from 63% to above 70% of GDP, that is, it has been the major chunk of GDP.

This 7% rise in PCE is accomodated by decrease in Gross private investment and  net exports. This is what economist mean when they say that fundamental of USA economy is flawed.

Will try to get similar chart for India, and would be interesting to see how do they compare against each other. For India, net export would be positive, and would be increasing. PCE won’t be this high, but it would certainly show upward trend. Gross private investment would have upward movement, and government consumtion and expenditure downward. All sign of a healthy economy 🙂 .

Written by SK

August 3, 2009 at 7:39 pm

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