Gross Value Added (GVA)

In economics, gross value added (GVA) is a measure of productivity measuring the contribution to the industry, manufacturer, sector, or region. Gross value added gives a dollar value for the quantity of products and services produced in a country, minus the cost of all inputs and raw materials directly attributable to that output. GVA is that the value of output less the worth of intermediate consumption; it’s a measure of the contribution to GDP made by a personal producer, industry or sector; gross value added is that the source from which the first incomes of the SNA are generated and is therefore carried forward into the first distribution of income account.

Gross value added (GVA) is significant because it is used to change GDP, which is a primary indicator of the state of the overall economy of a country. GDP is a measure of the stability and economic growth of a national economy. It represents the price of all products and services produced within the country within an outlined period of time. At the national level, GVA is usually favored as a measure of total economic output and growth compared with the gross domestic product (GDP) or gross national product (GNP). Gross value added is considered to be GDP by way of sales taxation and commodity subsidies. GVA brings back subsidies provided by governments to some parts of the economy and reduces taxes levied on others.

The relationship between GVA and GDP is defined as:

GVA= GDP + Subsidies on products – Taxes on products

Given that total aggregates of taxes on products and subsidies on products are only available at the level of the economy as a whole, Gross Value Added is used to measure gross regional domestic product and other output measures of entities smaller than an economy as a whole.

The Formula for Gross value added (GVA) is:

GVA=GDP+SP−TP

Where:

SP= Subsidies on products

TP= Taxes on products

​GVA is used for measuring of the contribution to GDP made by a personal producer, industry or sector. At the corporate level, this metric is commonly calculated to represent the gross value added by a selected product or service or corporate unit that the corporate currently produces or provides. In other words, the number added to gross value reveals and potentially creates a profit to the bottom line. Subtracting the use of fixed capital and the depreciation consequences, the business determines how much net value a single project brings to the bottom line.

Over-simplistically, gross value added (GVA) is the broad amount of all profits generated from final sales and (net) subsidies, which are company income. Such receipts are also used to fund costs (salaries & salaries, dividends), investments (profits, depreciation), and taxes (indirect).

 

Information Sources:

  1. investopedia.com
  2. wikipedia