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Economics/GDP growth rate vs nominal GDP

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Question
World Bank data says Indonesia's GDP grew 6% p.a from 2001-2011 while nominal GDP increased from USD200 Billion to USD800 Billion in the same period. Source at http://data.worldbank.org/country/indonesia

However, mathematically, 6% p.a over 10 years does not compound to 400% increase in nominal GDP. How can one reconcile the annual growth rate with the nominal GDP figures? Thank you!

Answer
Let's look at a real quick example that should help clarify:
6% linear GDP growth: 6+6+6+6+6 = 30; by the end of 5 years, the nation should see 30% total growth based on an average of 6% growth annually

6% cumulative GDP growth: 6+12+18+24+30 = 90; by the end of 5 years, the nation should see a total of 90% growth, based on year-over-year increases in GDP growth.

In other words, in the case of Indonesia, GDP has been increasing at an increasing rate.  On a graph, that will show a curved line that gradually becomes more steep over time, like an exponential curve.  Using World Bank data, you'll notice that GDP percentage growth rate floats between 4-7%, increasing at a mostly linear rate with a sudden drop in the 2007-2008 period, during the height of the global financial crisis (http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/ID?display=graph).  That increasing growth rate means that GDP is growing at a faster rate, shown in the graph of GDP (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/ID?display=graph).

Hopefully that clarifies it for you.

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Michael Taillard

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