Gross Domestic Product (GDP) is the most representative indicator that comprehensively shows the economic activity of a country. It is the total value of the added value of goods and services newly produced within a country over a certain period. The result of all economic activities conducted by the economy’s main agents, such as the government, businesses, and households, is aggregated into numerical values.
GDP is calculated based on the value of goods and services actually traded in the market. Income earned abroad or the effect of asset growth is not included; only the economic value created within the country is reflected. It is also the most commonly used figure in international comparisons of an economy’s size.
There are three main methods of calculation. The production approach measures the total economic output by summing the added value by industry. The expenditure approach consists of private consumption, government spending, investment, and net exports (exports minus imports). The income approach combines various incomes like wages, interest, rent, and profits to calculate GDP. In practice, the expenditure approach is primarily used.
GDP numbers are divided into nominal and real. Nominal GDP is calculated based on the market prices of that year and reflects the effects of inflation or deflation. On the other hand, real GDP uses the prices of a base year to remove price changes, providing a more accurate picture of actual economic growth. National statistics often utilize the real GDP growth rate as the ‘economic growth rate.’
For example, if South Korea’s GDP is 2,200 trillion won in a year and increased by 2% from the previous year, the total volume of economic activity across the nation has effectively increased by 2%. Per capita GDP is the total GDP divided by the population, indicating the average economic power level of each citizen.
GDP statistics are typically announced quarterly. The Bank of Korea provides a ‘preliminary estimate’ at the end of each quarter, a ‘revised estimate’ the following month, and a ‘final estimate’ at the beginning of the next quarter. These figures are widely used in forming government economic policies, corporate investment plans, and academic research.
GDP is a critical tool for diagnosing economic vitality or economic trends. However, it has clear limitations. For example, household labor, volunteer work, and the informal economy are not reflected in the statistics, and non-economic factors such as quality of life or environmental degradation are not considered. Therefore, there is a growing trend to use complementary measures such as life satisfaction, environmental indices, and distribution indicators alongside GDP.
For international comparisons, GDP calculated with the Purchasing Power Parity (PPP) exchange rate, which reflects the price levels of each country, is used instead of nominal exchange rates. This method offers a more accurate view of actual living standards or consumption capacity. The global GDP rankings published by international organizations such as the World Bank (WB), the International Monetary Fund (IMF), and the Organization for Economic Co-operation and Development (OECD) are often aligned using this PPP standard.
GDP serves as a benchmark for gauging the economy’s size and determining policy direction. Understanding its composition and flow is more important than the size of the figures themselves. It’s necessary to comprehensively understand which sectors are experiencing increased consumption, in which industries added value is growing, and how the structure of foreign exports and imports is changing for meaningful interpretation.
