# Box: Gross Product Originating: Definition and Relationship to Gross Domestic Product

Gross product, or gross product originating (GPO), by industry is the contribution of each private industry and government to gross domestic product (GDP). An industry's GPO, often referred to as its "value added," is equal to its gross output (sales or receipts and other operating income, commodity taxes, and inventory change) minus its intermediate inputs (consumption of goods and services purchased from other industries or imported).

In concept, GDP measured as the sum of GPO in all industries is the same as GDP measured in two other ways: As the sum of expenditures (consumer spending, investment, net exports, and government consumption expenditures and gross investment) and as the sum of the costs incurred (such as compensation of employees, net interest, and indirect business taxes) and the profits earned in production. In practice, BEA uses only the latter two ways to estimate GDP, but because of less than perfectly consistent source data, the resulting totals are not the same.

The current-dollar estimate of GDP is defined as the sum of the expenditure components, and gross domestic income is defined as the sum of costs incurred and profits earned; the difference between GDP and gross domestic income is the statistical discrepancy. Because the current-dollar GPO estimates are measured as the sum of distributions by industry of the components of gross domestic income, the sum of the current-dollar GPO estimates also differs from current-dollar GDP by the statistical discrepancy.

Real GDP is also measured as the sum of the expenditure components, using the formula for calculating chain-type measures. However, estimates of real gross domestic income are not prepared, because price indexes cannot be associated with income measures as they can be with the goods and services that make up the expenditure measures. Real GPO estimates for most industries are derived using the formula for calculating chain-type measures with separate estimates of gross output and intermediate inputs. (See the box "Computation of the Chain-Type Quantity Indexes for Double-Deflated Industries" on page 142 for information on how output and inputs are combined in these calculations.)

The sum of the chain-dollar GPO estimates differs from chain-dollar GDP by the chain-dollar statistical discrepancy, which is shown as part of private industry GPO, and by the discrepancy entitled "not allocated by industry," which is the difference between chain-dollar GDP and the sum of chain-dollar GPO for the detailed industries and the statistical discrepancy. The value of the category "not allocated by industry" reflects the lack of additivity of detailed chain-dollar GPO estimates because of the formula used to calculate chain-type measures of real output and because of the use of the expenditures measure of real GDP.

The statistical discrepancy is included in the GPO of private industries partly because of BEA's judgement that the current-dollar expenditure components used to measure GDP are more accurate than the current-dollar estimates of gross domestic income and that most of the measurement problems affect the GPO of private industries. For example, the adjustments to source data to account for tax-return misreporting, which are based on periodic IRS audit studies and rough estimates of the amounts of income not detected by these audits, are larger for the cost components of gross domestic income than for the expenditure components of GDP. In addition, it is BEA's judgement that the real expenditure components used to measure GDP are more accurate than the real GPO estimates. The amount of detailed expenditures data that are available for weighting the price indexes used in calculating GDP is greater than that for gross outputs and intermediate inputs used in calculating GPO, and little information is collected annually on the composition of inputs or of nonmanufacturing outputs. For some industries, no source data are available to measure gross output, and the resulting GPO estimates are prepared using less reliable methodologies.