Pinoy Ekonomiks 1: What is GDP?

In the next few blog posts, I will bravely attempt to make economics accessible to all those who are not Filipina mothers. As we know, Filipina mothers are already the best economists in the world, amazingly able to make ends meet for their large families. This series of blog posts is meant for those of us that chose that other elective course in college just to avoid this dreaded subject matter. I admit that I did take up Economics myself and was foolhardy enough to take it under the eminent Mareng Winnie. In that economics course, I discovered the full depth and breadth of my intellectual limitations – but that is another story.

Whenever people gather together and imbibe their favorite pale Pilsen, the conversation would sometimes drift to how well the government is managing the economy. People who dislike the government will naturally argue that the country’s economic performance is poor. These malcontents will conveniently cite that nearby barangay (village) with a lot of informal settlers (or squatters) to support their case. Families living in these impoverished communities suffer in the squalor without any relief for many years. Apologists for the government will cite that brand new mall selling all the fancy gadgets and stylish products or that cluster of new, state-of-the-art buildings at the edge of the city as evidences of the extraordinary health of the economy. As we listen quietly to both sides, we know that the truth probably lies somewhere in between. In order to discover this truth, we turn to the dismal science called Economics.

Gross Domestic Product

The most common (and objective) way to measure a country’s economic performance is through its Gross Domestic Product or GDP. GDP is calculated by adding together the value of all the goods and services produced in a country. In a poor country, this means adding the value of the rice and chicken produced, the value of the tricycle rides taken by the commuting public, the cost of all the “salakot” and “bakya” made, etc. In a rich country, it will include all the basic commodities produced similar to what you find in the less affluent countries plus the cost of the Ferraris built, the iPhone 6’s produced, the healing spas given, the skyscrapers constructed and the Maroon 5 concerts held. In short, the greater the value of the products produced and services delivered in a country, the healthier its economy is supposed to be.

Philippine GDP

The GDP of the Philippines in 2014 is USD 285 billion. By itself, this figure is largely useless for most of us. One way to make this figure understandable is to compare the latest GDP figure against the historical trends. The bar graph below shows the GDP levels from 2006. Note the steadily rising GDP under the current Aquino administration beginning 2010. This is good news as this indicates a steadily growing level of economic activity every year.

GDP graph

We are a predominantly Catholic country that loves to raise large families. Larger families need more soap bars, more shirts and pants, and more Starbucks coffee. GDP should naturally grow as the population increases.

How do we know then that the rising economic activity reflected in our GDP numbers is not just the result of a growing population but can be attributed to rising affluence instead? For this purpose, we can calculate per capita GDP – this represents the average share of each Filipino of the aggregate GDP. The line graph below shows that the per capita GDP all the way back to the term of Diosdado Macapagal as president. There have been ups and downs but has been steadily increasing from around 1993 and has been picking up strongly from 2010. Some people will look back nostalgically at the Martial Law days and refer to those years as the “golden age” in our economic history. Per capita GDP tells a starkly different story: The line graph shows that the per capita GDP at the end of the Marcos regime in 1986 is barely higher than the per capita GDP in 1972, 14 years earlier. The entire period of military rule and dictatorship resulted into an economy that was largely stagnant, notwithstanding the bump in the middle. The good old days were hardly good at all, as it turns out.

Per capita GDP

The sharp rise in per capita GDP during the term of Benigno Aquino is a very positive development, but with one cautionary note. Per capita GDP shows an average figure and does not necessarily mean that each Filipino is being benefited equally. It may be that some Filipinos are benefiting more while others are benefiting less. Income inequality is a topic I can spend time on in the future, if there is any interest from the readers.

Another way to make the GDP numbers more understandable is to compare the Philippine GDP trends is those of some other countries. Some of us like to compare ourselves with Singapore or Japan or Vietnam. We can do this comparison, of course, but this will have to wait until the next blog post. Abangan ang susunod na kabanata!

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