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Exports vs. GDP: use value-added, not headline!

I'm always getting on the case of Vietnamese economics reporters for using statistics inappropriately, so I was embarrassed to read an article in this morning's Vietnam Investment Review, by Nguyen Thanh Ha and Hoang Viet Phuong of Saigon Securities (article not on website), that revealed I've been using some wrong statistics myself.

I've been using the frequently cited figure that exports account for about 70 percent of Vietnam's GDP. It turns out this is misleading because it compares gross domestic product to the total value of exports including all the elements of those exports which were made outside of Vietnam and just assembled in Vietnam. The proper comparison to make is to compare the value-added component of Vietnamese exports to the total GDP, which gives you a more reasonable figure of about 15-20 percent for the percentage of GDP accounted for by exports.

It's easy to see why this is true. Imagine, for example, that you had a country of 10 farmers with per capita GDP of $1,000 each. Then say you hired 3 of those farmers at $1,200 a year to assemble Toyotas, shipping in all the prefab auto parts from abroad, and exported those cars back to Japan. If you booked the entire value of the cars as export value and compared that to GDP, you'd quickly show exports accounting for five or ten times the country's total GDP, which doesn't make any sense. The rational thing to do is to compare GDP to the export value added in Vietnam, which would be roughly the same as the farmers' salaries of $3,600 a year and would thus show that exports accounted for something like a third of GDP, which seems about right.

The 70 percent figure always seemed a little crazy to me — even in an export-oriented economy, the vast majority of people in Vietnam are obviously working for and making things for other Vietnamese, not for foreigners. The more accurate figure is a relief both because it's not crazy, and because it indicates that the current very rapid slowdown in exports isn't quite the dire threat to Vietnam's economy that it might have seemed.

http://www.globalpost.com/notebook/vietnam/090330/exports-vs-gdp-use-value-added-not-headline