Gross Private Domestic Investment
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Gross Private Domestic Investment: Definition, Examples, and How to Calculate GPDI
Last updated: Nov 8, 2020 • 3 min read
Everyone knows to look to GDP—gross domestic product—for clues about the health of the economy. But what of the lesser-known measure called gross private domestic investment?
One of four components of GDP, this highly specific figure can reveal whether an economy is expanding or contracting, and what it could look like at maximum potential.
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Gross private domestic investment, or GPDI, is a measure of the amount of money that domestic businesses invest within their own country. GPDI constitutes one component of GDP, which politicians and economists use to gauge a country’s overall economic activity.
GPDI has three main characteristics:
GPDI is the sum of two different types of investment, plus changes in businesses’ inventories. The three factors are:
GPDI is determined by the following formula:
GPDI = (non-residential investment) + (residential investment) + (change in inventories)
To obtain the figure for the change in inventories, you subtract the inventories at the beginning of the year from the inventories at the end of the year. If inventories have decreased, this will be a negative number.
GPDI is important because it provides an indicator of the future productive capacity of the economy. Capital investment today suggests the potential to generate new goods and services based on those resources tomorrow.
The US Bureau of Economic Analysis provides official estimates of GPDI and GDP in its
national income and product accounts, a major part of the country’s accounting. GPDI typically
accounts for 15-18% of U.S. GDP.
In Q1 of 2019, GPDI was $3783.364 billion—a record high.
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Gross Private Domestic Investment: Definition & Formula
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In this lesson, you will define the concept of gross private domestic investment (GPDI), list the factors that are used to determine it, and learn to calculate it using a simple formula.
There are many different methods used by politicians and economists to measure the relative health of a given country's economy. Some measurements measure the overall health of an economy while others measure more specific factors within that economy. Gross private domestic investment (GPDI) falls under the latter because it is used to measure a specific factor within a country's economy. GPDI is defined as the amount of money that domestic businesses invest within their own country.
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0:02 GPDI Defined
0:30 Specific Factors of GPDI
1:20 Calculating the GPDI
1:52 What GPDI Really Looks Like
3:35 Lesson Summary
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In order to calculate gross private domestic investment, it is important to first know the three factors that make up the calculation. GPDI includes the following types of investment:
Gross private domestic investment is the sum of these three factors. The sum will always be expressed in a country's local currency; however, when comparing different countries, the United States Dollar is used as a common currency.
In order to simplify the formula used to determine gross private domestic investment, we will use some abbreviations:
The formula to calculate gross private domestic investment is as follows:
For this example, let's start with a fictitious country called Econostan. Here is some of the information about Econostan's economy from last year:
Now we can take this information and plug it into the formula.
GPDI = $500,000 + $100,000 + ($325,000 - $250,000)
GPDI = $500,000 + $100,000 + $75,000
Now let's calculate the gross private domestic investment in Econostan when there is a decrease in business inventories instead of an increase:
GPDI = $500,000 + $100,000 + ($225,000 - $325,000)
GPDI = $500,000 + $100,000 - $100,000
The only difference here is that you need to subtract the business inventories instead of adding them as we did previously.
Gross private domestic investment is the specific measurement of the amount of money that domestic businesses invest in their home country. It is used to measure specific factors in an economy rather than the economy's overall health. By determining the amount of business expenditures, landlord expenditures, and business inventory changes, the formula GPDI = C + R + I will easily help you determine any country's gross private domestic investment in a given year.
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