The\nimpact of multinationals on Irish GDP has in recent years prompted the CSO to\npublish other measures which are deemed to better capture \u2018real\u2019 economic\nactivity and income in Ireland. Although not recognised internationally, these\nconcepts are now often used by the Department of Finance, the Central Bank and\nsome private sector forecasters in their projections. <\/p>\n\n\n\n
One such\nmeasure is Modified Domestic Demand (MDD) but it is not a useful or indeed\nmeaningful concept in terms of the output and income of the Irish economy..\nLets start with domestic demand itself, which is simply the total spending on\ngoods and services by consumers and the government plus capital formation. The\nlatter captures spending on construction, investment by firms on machinery and\nequipment, plus what is termed Intangibles, defined as spending on R&D and\nthe creation of Intellectual property. This spending used to be seen as a cost\nbut under revised National Accounts definitions is now included in the GDP\nfigure as a source of capital creation.<\/p>\n\n\n\n
To give\nsome context, taking figures for 2020, personal consumption amounted to \u20ac100bn,\ngovernment consumption was \u20ac40bn and capital formation \u20ac148bn giving a total of\n\u20ac288bn. The value of stocks produced but not sold is also added (\u20ac5bn), so MDD\namounted to \u20ac293bn in that year. Note though that the stock component is small\nbut is a production rather than a spending figure, unlike the other three.<\/p>\n\n\n\n
Yet some\nof that domestic spending went on imports (i.e. goods and services produced\nelsewhere) which is precisely why total imports are deducted from the GDP\nfigures to avoid inflating the amount of goods and services produced here. To\nsay , therefore, that domestic demand will rise by 10% tells us nothing about\nwhere that demand is met from- will there be a huge boost to Irish firms or\nwill that demand be satisfied by firms abroad. Similarly no account is taken of\nexports. It is one thing to argue that some multinational exports help to\noverstate Irish income and output but another to ignore all exports from\nwhatever source, be it from indigenous firms or multinationals; \u20ac150bn of\nexports in goods alone were shipped out of this country in the first eleven\nmonths of last year.<\/p>\n\n\n\n
Then\ncomes the modified bit. The capital formation figures, as noted , include\nspending on Intangibles, which in Ireland are dominated by multinationals,\nextremely volatile even on an annual basis and exceptionally large. They boost\ncapital investment but in effect have little impact on total GDP because most\nare service imports ( and hence take a negative sign in the GDP sum). While\nother imports are ignored the CSO modify the domestic demand figure by\ndeducting R&D and Intellectual property imports, amounting to \u20ac100bn in\n2020. One final deduction is made, which is the value of aircraft relating to\nleasing , although much smaller in impact, at \u20ac9bn in 2020. As a result\nmodified capital formation drops to only \u20ac38bn (from \u20ac148bn) so MDD in total is\nreduced to \u20ac183bn from the original \u20ac293bn. GDP in that year was \u20ac373bn.<\/p>\n\n\n\n
One\nargument put forward in defense of MDD is that it is highly correlated with\nemployment, which is true, but the correlation between employment and GDP over\nthe past decade is also very high, at 0.97. It is simply not a measure of\noutput or income in Ireland, or even the output of the domestic economy. One\nfinal point: forecasting Irish GDP is difficult enough, but good luck in\nprojecting spending on intangibles, which is the main modification in the MDD\nconcept. <\/p>\n","protected":false},"excerpt":{"rendered":"
The impact of multinationals on Irish GDP has in recent years prompted the CSO to publish other measures which are deemed to better capture \u2018real\u2019 economic activity and income in Ireland. Although not recognised internationally, these concepts are now often used by the Department of Finance, the Central Bank and some private sector forecasters in … Continue reading “Modified Domestic Demand is not a measure of Irish Economic activity”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-119","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/119","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=119"}],"version-history":[{"count":1,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/119\/revisions"}],"predecessor-version":[{"id":120,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/119\/revisions\/120"}],"wp:attachment":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}