Gross Value Added (GVA)

What Is Gross Value Added (GVA)?

Gross value added (GVA) is an economic productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region.

GVA provides a dollar value for the amount of goods and services that have been produced in a country, minus the cost of all inputs and raw materials that are directly attributable to that production. GVA thus adjusts gross domestic product (GDP) by the impact of subsidies and taxes (tariffs) on products.

Understanding Gross Value Added (GVA)

GVA is the output of the country less the intermediate consumption, which is the difference between gross output and net output. GVA is important because it is used in the calculation of GDP, a key indicator of the state of a nation's total economy. It can also be used to see how much value is added (or lost) from a particular region, state, or province.

At the national level, GVA is sometimes favored as a measure of total economic output and growth over GDP or gross national product (GNP). GVA is related to GDP through taxes on products and subsidies on products. It adds back subsidies that governments grant to certain sectors of the economy and subtracts taxes imposed on others.

At the company level, this metric is often calculated to represent the GVA by a particular product, service, or corporate unit that the company currently produces or provides. Once the consumption of fixed capital and the effects of depreciation are subtracted, the company knows how much net value a particular operation adds to its bottom line. In other words, the GVA number reveals the contribution made by that particular product to the company's profit.

The formula for GVA:

GVA = GDP + SP − TP where: SP =  Subsidies on products TP =  Taxes on products \begin{aligned} &\text{GVA}=\text{GDP} + \text{SP}-\text{TP}\\ &\textbf{where:}\\ &\text{SP}=\text{ Subsidies on products}\\ &\text{TP}=\text{ Taxes on products} \end{aligned} GVA=GDP+SP−TPwhere:SP= Subsidies on productsTP= Taxes on products

Gross Value Added (GVA) Example

Let's consider a hypothetical example for the fictitious country, Investopedialand. As a very simplified example of calculating GVA, consider the following data for our fictitious country:

Using this data, the GVA can be calculated. The first step is to calculate the GDP. Recall that GDP is computed as private consumption + gross investment + government investment + government spending + (exports - imports):

Next, we calculate the subsidies and taxes on products. For simplicity's sake, assume that all private consumption is consumption of products. In that case, subsidies and taxes are as follows:

With this, the GVA can be calculated as follows: