Comparative analysis of GDP components between Jamaica and the United States

Jamaica and United States: An Analysis of GDP

Comparison of Jamaica and U.S. GDP

In 2009 U.S. dollars Jamaica's Gross Domestic Product (GDP) based on purchasing power parity registered at 23.76 billion (CIA Factbook- Jamaica). In contrast the United States of America produced a Gross Domestic Product of 14.12 trillion dollars in 2009 dollars (CIA Factbook- U.S.). Respectively these figures translate to a per capita GDP of $8,400.00 dollars for Jamaica (CIA Factbook- Jamaica) and $46,000.00 for the United States (CIA Factbook- U.S.). Given the distinct disparities in GDP, an analysis of the components comprising the GDP calculation provides useful insight into the similarities and differences inherent in the two nations.

GDP is comprised of four components: consumption expenditures, investment expenditures, government purchases, and net exports. Taken in aggregate these components detail "the market value of all final goods and services produced within a country in a given period of time" (Mankiw, G.). One of the striking similarities between the two countries is the reliance on a service economy to fuel economic growth. In 2009, Jamaica's service economy accounted for 63.9% of GDP (CIA Factbook-Jamaica), while for the U.S.; services totaled 76.9% of the economy (CIA Factbook-U.S.).

Consumer Expenditure

Consumption expenditures, "spending by households on goods and services" (Mankiw, G.) represents an enormous percentage of both the Jamaican and U.S. economies. For Jamaica the consumption figure is 81.6% of GDP (Trading Economics- Jamaica), while the U.S. value is 71% of GDP (Trading Economics- U.S.). The reliance on consumption to drive economic growth for both countries overlooks the U.S. consumer who has requisite levels of disposable and discretionary income for purchases. Jamaica's consumption however, is heavily dependent on tourism, "accounting for 20% of GDP" (CIA Factbook- Jamaica). The reliance on tourism as a key driver of growth presents the potential for vicissitudes in GDP values, reflective in changes to customer tastes or larger global economic conditions. The presence of such a large percentage of consumption can also be indicative of an export-import imbalance.

Net Exports

"Net exports equal the purchases of domestically produced goods by foreigners

(exports) minus the domestic purchases of foreign goods (imports)" (Mankiw, G). A country with a positive net exports figure will have an addition to their GDP, while a negative value will result in a subtraction from GDP. Again, with Jamaica and the U.S. there is a noticeable similarity. Jamaica has a negative net export value of 3.318 billion (CIA Factbook- Jamaica), consistent with a 25.5% reduction in GDP (H.S. Dent). The U.S. runs a negative net export value of 506 billion (CIA Factbook-U.S.) however, representative of a five percent reduction in total GDP. (H.S. Dent). The long run implications of such trade deficits are lagging economic growth and increased government debt.

Government Expenditures

The mention of increased government debt leads to the size and role of government in both countries. With the onset of the great recession many countries increased government spending as a percentage of GDP. For Jamaica the most recent 2009 data indicate "government spending equaled 35.7% of GDP" (Heritage Foundation). In the U.S. "in the most recent year, government spending equaled 37.4% of GDP" (Heritage Foundation). Government deficit spending can lead to long-term structural debt, another similarity between the two countries. Jamaica has "a public debt-to-GDP ratio of more than 130%. (CIA Factbook- Jamaica). The U.S. has a debt-to-GDP ratio of 53.5% (CIA Factbook- U.S.) however, that number is expected to approach 90% of GDP by 2020 (Washington Times). Long-term structural debt issues if left unchecked will deliver a pernicious attack on the growth prospects of both countries.

Investment Expenditure

The remaining component of GDP, investment expenditures is perhaps the most important to economic growth, because it provides the foundation for future expansion. According to the CIA Factbook, Jamaica and the U.S. had respectively 24.6% and 12.2% of GDP in the form of investment (CIA Factbook). Because investment drives future growth, hiring, productivity gains, and innovation; there is an imperative for both countries to engender an environment in which investment is rewarded and encouraged.