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121 Monthly Lab. Rev. 22 (1998)
GDP Components' Contributions to U.S. Economic Growth

handle is hein.journals/month121 and id is 594 raw text is: _(O WIN GDP components' contributions to U.S. economic growth Rebasing GDP and its components on chained 2001 dollars enhances the role of services as a contributor to economic growth, while diminishing the significance of private investment; only minor effects are seen on the contributions of net foreign trade and government expenditures D ecently, the Bureau of Labor Statistics pro- P jected that U.S. real gross domestic prod- uct (GDP) will exceed $8.5 trillion by 2006, an increase of more than $1.6 trillion during the 1996-2006 period.' In the BLS economic pro- jection, real GDP and its components were stated in chained 1992 dollars, as is typically done for real output measures.2 However, the BLS projection em- ploys a terminal year 14 years from the 1992 base year used for the chained dollars, and because rela- tive prices in the economy can change substantially over 14 years, the question arises as to whether some other base year would be more appropriate. This article explores the issue by rebasing from chained 1992 dollars to chained 2001 dollars. While this rebasing does not change calculated growth rates, it does affect calculations of how the various GDP components contribute to overall GDP growth. Economic growth can be analyzed from sev- eral vantage points, such as the growth rates of the various GDP components or their contribu- tions to growth. Each measure has advantages, and certain weaknesses as well. Growth rates, for example, highlight the dynamic sectors of the economy. But often the fastest growing compo- nents of GDP are the smaller ones. These compo- nents will contribute proportionately less to the overall increase in GDP because their growth rates apply to small initial values. Conversely, the contributions to growth of the GDP components---defined for each component as the ratio of the change in that component over the projection period to the total change in GDP over the period, expressed as a percentage-pinpoint those components most responsible for additions to GDP. However, with this approach, some impre- cision results: upon aggregation of the component percentages, a residual amount remains. Analysis in chained 1992 dollars Table 1 compares the 1996-2006 projected growth rate, the expected percent distributions of GDP, and the projected contributions of vari- ous components of GDP to its growth. According to the table, those components of GDP with the fastest projected growth rates involve foreign trade. Exports of goods are expected to advance 8.0 percent annually over the projection period, while overall exports are anticipated to grow 7.4 percent annually. Countering the growth of ex- ports, the Bureau projects imports of goods to expand at a 6.9-percent annual rate from 1996 to 2006. Total imports would register a 6.4-percent annual advance for the period. Growth rates for international trade describe a U.S. economy progressively integrating with the world economy. Nonetheless, on net, the foreign sector does not significantly contribute to the additional GDP produced for the projection period, because imports, more or less, offset exports.' Only 3.1 percent of the projected contribution to total GDP growth for 1996-2006 is related to net exports. 22 Monthly Labor Review June 1998 Thomas Boustead Thomas Boustead Is an economist formerly with the Office of Employment Projections, Bureau of Labor Statistics.

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