How to Calculate GDP
For simplification purposes, consumption and investments were the two variables used, as they are the two primary factors in GDP .
When forecasting the GDP 3 years into the future, past the already collected data, Albania shows around 7-7.8% growth in each of the three years when using the linear trend line. However the trend line is not an accurate depiction of how GDP will actually be over the next three years. To get predicted values consumption and GDP and Investments and the change in GDP over a period (lagged) are regressed and the coefficients are obtained. The actual data shows an increase in GDP in 2009, an increase in 2010 and a decrease in 2011. Consumption continues to rise, but investments start to decrease, causing the eventual dip in GDP.
To get the next three year’s data consumption and the GDP was graphed together and investments and change over gdp from the previous period was graphed together. Statistical analysis was then ran on excel to give the coefficients of the variables. Plugging the coefficients into the formulas for consumption and investment gave each year’s estimated value. And by adding investment and consumption together, it gave GDP.
Some Background Information:
Albania had missing data from 1991-1995 concerning consumption and investments. For decades it was a satellite of the Soviet Union and did not have a stable government to accurately record and collect data with. The Berlin Wall fell in the early 90’s and the satellite nations took time to form stable democracies and put bureaucrats in place to collect and organize economic data.
1997 was the one year with a decreasing GDP. Sali Berisha, the first president, dealt with riots due to social unrest after the unraveling of nationwide financial pyramid schemes, which led to a 1 year drop in investments, causing a decrease in GDP.
Comparatively to developed nations, Albania has a small economy, therefor a smaller GDP. Nearly 60% of their labor force is still involved in the agricultural sector (a sign of a non-developed economy), which also makes up over 20% of the gross national product. Agriculture has typically been low yielding in terms of GDP for developed nations and makes up small dollar amounts, but in Albania it is a major source, limiting the size the economy can grow.
More consumer goods are finally entering the buyer’s market, allowing consumption (around 2/3 US GDP) to increase, which increases GDP. Investments (typically the second largest part of GDP) have also been rising each year leading to economic growth.
Technology and science breakthroughs are not significant in Albanian economic growth, leaving the other factors of the economy to support the growth. Government expenditures are also low, as it has one of the smallest budgets in Europe, and exports are minimal too, leaving the economic growth to investment and consumption.
Albania has a reserve of fuel, with about 30 million cubic meters of natural gas, enough to adequately meet consumer demand, supplying all those whom demand and seek consumption.
In 2008 the United States and much of the globe experienced a financial crash and a “global recession” where economic growth was negative. Albania however does not export much and did not experience a large decrease in exports due to the global market crash. It is also not heavily involved in foreign outgoing investment, due to its primary industry being a mostly self-sustaining agricultural one, but does get foreign investment. The savings of the country is invested within the country itself. Due to being economically isolated in terms of consumption and investments, Albania was not hit hard by the global recession and continued to have a growing economy as the consumption continued to increase. In 2011 the lost in investments from foreign sources is higher than the growth in consumption causing the negative GDP year.
The population continues to grow at .68% and it has one of the highest birthrates in Europe (ban on birth control during communist era). A growing population with a longer life expectancy is increasing consumption.
Statements on the Results
The trend lines both show continued economic growth and Albania did not take an economic hit in 2008 like most other nations. It is not a heavy service based, industrial, technological, or manufacturing economy. Its primary industry is farming and due to a growing population the consumption continues to grow, fueling the economic growth. The trend line pre 2009 shows continued investment growth, but due to recent economic conditions around the world, the foreign investments have decreased, causing small decreases.