# Why are imports subtracted from GDP?

GDP is a measure of a country's production.

$$GDP = C + I + G + X_n$$

$C$ = Consumer Consumption
$I$ = Gross Investment
$G$ = Government Expenditures
$X_n$ = Exports - Imports

Exports are what we produce and make a profit from by selling to buyers outside our country. Imports are not produced by our country, so it shouldn't be included in the GDP, so it makes sense to exclude it from the calculation; ie. there should be no "- imports" in the calculation.

However, the calculation subtracts imports from the GDP. Imports somehow take away from what we produced? That seems to say, calculate how much I have produced, X, and then don't count some of it because I imported Y. Which doesn't make sense given that importing doesn't remove goods and services that have already been produced!

For example, let's say I can take apples and make pies... I produced value in the form of the "pie" quality. Importing the "pie" quality and tacking it on an apple creates an apple pie. However, I didn't make that "pie" so I can understand how it doesn't get included in the GDP: the value of the "pie" quality was not produced in this country, so it isn't included in the GDP.

Let's also say my GDP = "made a cat meow" + "turned a tree into a fountain". Somehow, by importing the "pie" quality, I am to ignore some of the value of making a cat meow?

When we import something, we consume it. So when calculating consumption we are bound to count import as a positive component of GDP. Since it is not (we did not produce imports domestically), we subtract it to make it neutral.

• You're spot on. The accounting identity (exports-imports) is done because C+I+G includes domestic consumption on foreign goods and GDP is the value of domestic production. – John L. Dec 3 '15 at 10:29

One way to navigate rather safely in National Accounting Identities, is to put on the one side "what you have available" and on the other side "what you do with it". In the specific case ($M$ being imports) we would have

$$GDP + M = C + I + G + X$$

"What we have available" is what we produce and what we import.

"What we do with it" is a) consume it b) invest it c) let the government incur expenses and d) export it (note that we can export not only what we produce but also what we have imported).

I believe it is all reasonable. Then, rearranging,

$$GDP = C + I + G + (X-M)$$

the term in the parenthesis being "net exports".

GDP means gross domestic product. It the sum of all services and goods produced within the boundary of nation. Since imports are produced in other countries so we donor include imports in our GDP I mean to say that we pay for it... So we take a negative sign with it

Net exports means total exports-total imports. Export represents domestic production selling to another country. That's why it is included in GDP (as GDP means the total market value of all final goods and services produced in a country within a given period). Import is subtracted because it's the production of a foreign country purchased by domestic country.

• This is the same answer than the accepted one. – luchonacho Aug 27 '17 at 8:48

This is the expenditure method. It includes all the expenditures in the economy. Indeed, when we import goods, we spend to consume. Even if you exclude imports from calculations, you will not exclude its part from consumption. Thus, you need to substract it.