# GDP in expenditure approach

GDP calculated using expenditure apporach is like this: GDP=C+I+G+(X-M) However on this site: http://www.singstat.gov.sg/statistics/visualising-data/charts/share-of-gdp-by-expenditure

The data is avaialable for C, G and net exports, but there are two variables: Gross Fixed Capital Formation and Changes In Inventories. Since there is no 'I' variable, can I assume that the sum of those two variables are equal I?

• What's stopping you from doing so? Why do you think that it is or it isn't part of I?
– Toby
Apr 29, 2017 at 18:32
• Given that all other variables are the same then i suppose that those two might equal I, however im not sure thats why I ask Apr 30, 2017 at 11:47
• Those are certainly components of investment. I am unsure whether there is something missing. If all the numbers shown add up to 100%, then you seem to be right. You would need to get a guide from the statistical agency to get a more authoritative answer. Apr 30, 2017 at 21:38

## 1 Answer

The authoritative source here is the United Nations System of National Accounts, SNA.

Change in inventories are indeed part of what we normally call Investment. First, for clarification, the definition of "change in inventories", taken from page 108 of SNA, version 2008:

The basic principle underlying the measurement of changes in inventories of finished goods is that output should be recorded at the time it is produced and valued at the same price whether it is sold, otherwise used or entered into inventories for sale or use later. In effect, goods only enter inventories when they are not immediately used for sale or other use in the period they are produced. Similarly, goods are withdrawn from inventories when the demand for the goods exceeds the amount produced in a period. No output is recorded when goods produced previously are withdrawn from inventories and sold or otherwise used unless a storage activity as described be low in section F takes place.

Second, the components of "Investment" (officially called Gross capital formation), as stated in page 282 of the aforementioned document is:

There are three types of capital formation to be examined, gross fixed capital formation, changes in inventories and acquisition less disposal of valuables.

This and following pages go about explaining each of them, and how to measure them.

Finally, the document provides a worked example of the table of "uses of output" (the expenditure approach of GDP). Here is a screenshot of a section of that worked example, presented in page 291. You can see that change in inventories are indeed treated as part of "Gross Capital Formation":