Answer to Question #249654 in Economics of Enterprise for bubba

Question

Why are imports excluded from GDP and why are exports included in GDP?

Answer 1

Imports are excluded from GDP computation because they have no direct impact on the GDP level; GDP measures domestic production. Imported items are already measured as a component of exports and as part of consumption, investment and government expenditure and thus, not subtracting them would result in overstating the GDP.

Net exports, on the other hand, are a function of national income. Exports are included in GDP identity because they represent a country's domestic production that is sold to other countries and thus contribute to aggregate expenditure. GDP measures the value of all goods produced within a country's borders in a year.