Magazine article Economic Trends

Imports and Economic Growth

Magazine article Economic Trends

Imports and Economic Growth

Article excerpt

02.02.10

A quick look at the latest GDP data might suggest that imports are slowing the domestic recovery. A quick look might get it wrong.

Real GDP--the chief barometer of our nation's economic health--increased 5.7 percent in the fourth quarter of 2009, according to advance estimates. In a standard analysis of the data, the Commerce Department calculates the contribution that each spending category in the accounts makes to the overall GDP growth rate. In the fourth quarter of 2009, inventory accumulation alone added a whopping 3.4 percentage points to the overall growth rate. Expanding exports, personal consumption expenditures, and business and residential investment together added another 3.7 percentage points to the quarter's growth. In stark contrast to these growth contributors, expanding imports seem to have pulled overall economic growth down by 1.4 percentage points to the observed 5.7 percent. Expanding imports always appear as a drag on overall economic growth.

[GRAPHIC OMITTED]

This unfortunate false perception results because imports enter the GDP account with a negative sign. Consequently, whenever imports increase, which is typically the case in a growing, open economy, they appear to take bite out of GDP growth. Appearances can indeed be deceiving. In fact, imports promote economic growth.

[GRAPHIC OMITTED]

Interpreting imports in the GDP accounts requires some care. GDP measures the value of all final goods and services produced in the United States over each quarter. Last quarter, for example, the United States produced $13.2 trillion worth of output, as measured in 2005 dollars. Since imported goods are not produced here, they do not belong in the tally, but taking them out creates a small perceptual problem. The key expenditure categories of the GDP accounts, like personal consumption, business-fixed investment, and government spending, do not distinguish between outlays for goods and services produced in the United States and spending on goods produced abroad. That is, imports are already in these categories. Instead of removing imports from each individual spending category, the Commerce Department lists imports as a separate component in the accounts, which then gets subtracted from the total. …

Author Advanced search

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.