Proem

Two weeks ago the Philippines Government announced that in year 2007 the economy grew by 7.3% as computed from Gross Domestic Product (GDP).

If the economy was better in 2007, why are the Filipinos still hard up? Let us see what happens if we compute using GNP instead of GDP.

Economic Measures

In the 1920s and 1930s, Simon Kuznets developed a concept on how to measure the economy. From Kuznets' theories were drawn the concept of GNP and GDP. These concepts earned for him the 1971 Nobel Prize in economics.

At first the GNP, which has a broader scope, was used by the U.S.A. However, when their national debts increased, the GNP measure was no longer attractive. In 1991, the U.S.A. shifted to the use of GDP, which has a little difference in approach. Due to similar situation, the Philippines also used the GDP.

Gross Domestic Product

GDP is the market value of goods and services produced domestically during a specific period of time. It do not regard whether the laborer or owner of the capital is a citizen of a country or a foreigner. Therefore the earnings of our OFW are not included because it is not earned domestically. However, the earnings of foreigners within the Philippines are included.

Gross National Product

GNP measures the output produced by the citizens of a country whether earned within the country or outside the country. The OFW earnings are now included.

To balance the mathematical concept, the earnings of foreigners in the Philippines, which is included in GDP must also be subtracted.

Equation

The equation for Gross National Product (GNP) is:

GNP = GDP + earnings of Filipinos abroad - earnings of foreigners in the Philippines
Take note that GNP is broader than GDP because GNP takes into account the foreign earnings.

Comparison

The earnings of our OFW were $8 billion. Add to it the earnings of some Filipino businessmen abroad. Let us assume that the total is $10 billion.

In the Philippines, the foreigners own many businesses like the following: The oil firms, car manufacturers, the MRT, the cement factories, the "Call Centers," the LOTTO game, most of the firms at the Export Processing Zones, etc. Even in Bohol, the Bohol Light and Bohol Water have a foreign shareholder.

If you add all the earnings of foreigners in the Philippines, it will exceed the $10 billion earned by Filipinos abroad. The earnings of the oil firms alone can easily counterbalance the $10 billion.

For the sake of computation, let us assumes that the foreigner's earnings in the Philippines are $30 billion. Then the equation becomes,

GNP = GDP + $10 - $30
GNP = GDP - $20

Since we will subtract $20 from the GDP, it shows that the value of GNP will be lower than GDP.

We do not have the value of actual GDP. Since the budget of the Philippines is P1 Trillion or about $25 billion, then we can estimate that the GDP is somewhere near $25 billion. If we use $25 billion as the GDP then the Philippines GNP is only $5 billion or P200 billion. This will be the money circulating in the Philippines because the $20 billion or P800 billion is sent abroad as earnings of the foreigners.

Now you can see that if we use GNP as the measure of our economy, the situation is very grim. That is why we are placated by the government by using GDP and tell us that the economy is good but we could not understand how it is good when in fact the people are hard up.

How About Our Foreign Debt?

Strictly speaking our payment for our foreign debt ought to be included as earnings of foreigners in the Philippines. If we subtract further our foreign debt payments you can see how grim indeed is our economy. I'm pretty sure that these are not included in the computations because it can be reasoned out that it is similar to "stock transactions" that are not included in the computation because they are mere transfer of ownerships and not productions.