November 25, 2005

How to determine the contributions of domestic demand and exports to economic growth?

There are two methods in use to determine the contributions of expenditure categories to economic growth. In the conventional 'international method', total imports are deducted from exports, whereas in what is known as the 'Dutch method', final and intermediary imports are allocated to all expenditure categories.

Although the Dutch method is a little more complex than the international method, it has the considerable advantage that the contributions of the expenditure categories to GDP growth can be better compared, producing a better understanding of the composition of GDP growth. This memorandum discloses the Dutch method and illustrates the differences in perception which the two methods produced for the years 1999 to 2004. The findings are that the international method underestimates the importance of exports for GDP growth and overestimates the importance of domestic expenditure categories, like private consumption and investments.


Johan Verbruggen