Introduction to gross value added (GVA)
- Gross Value Added is the value of goods and services produced by an industry, sector, manufacturer, area or region in an economy. It is the total value of output produced, without including the intermediary costs that went into producing them.
- GVA is a critical value used to calculate the GDP of the economy. It is also the source from which the first incomes of the System National Accounts (SNA) are counted as primary incomes for the manufacturer.
Understanding Gross Value Added
Gross Value Added makes up a significant part of the total GDP of the country. When goods are produced, the final value attached before taxes and subsidiaries are charged, is the contribution that the said producer has made. GDP, while is a substantial value that measures the growth and development of the country, GVA provides the same picture, albeit more objectively and includes all the primary incomes.
Calculating GVA is done when the intermediary costs are subtracted from the total output produced. This means that it is the difference between Gross output and Net output.
- The inferences that GVA provides are dual in nature: in calculating GDP, subsidies given by the government are subtracted from the GVA and taxes are levied, thereby presenting the final value contributed to the GDP.
- On the other hand, adding back subsidies and removing the taxes measures the economic productivity of the producer in an area or industry. It shows how much the product is contributing to a company’s profit.
Highlights of Gross Value Added
In simple words, GVA is the summation of all revenues of the industry, from sales to subsidies, that are gains and incomes to the manufacturer.
GVA is sector specific. GDP combines the values of all GVAs across all industries, levies taxes and subsidy deduction.
GVA provides a figure for deciphering the net profit of a producer. After other costs are subtracted, GVA shows how much value is contributed by the line of work to the company’s profit.