# Gross Value Added (GVA): Definition, Formula, and Example

![Gross Value Added (GVA): A productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region.](https://www.investopedia.com/thmb/kE2_njIJLoZufB5HJUM6W6Y2Bf4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gross-value-added.asp-final-598e261fac75499d805470cb14f2de7f.png)

*— Investopedia / Laura Porter*

> **Definition**
>
> Grass value added is a metric that measures the economic contributions of producers, industries, sectors, and regions to economies.

## What Is Gross Value Added (GVA)?

Gross value added (GVA) is an economic productivity metric that measures the contribution of a producer, industry, sector, or region to an economy.

GVA provides a dollar value for the amount of goods and services that have been produced in a country, minus the cost of all inputs, raw materials, and intermediate consumption that are directly attributable to that production. GVA thus adjusts gross domestic product (GDP) by the impact of subsidies and taxes (tariffs) on products.

### Key Takeaways

*   Gross value added (GVA) is an economic productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region.
*   GVA is the output of the country less the intermediate consumption, which is the difference between gross output and net output.
*   GVA is important because it is used to adjust GDP, which is a key indicator of the state of a nation's total economy.

## Understanding Gross Value Added (GVA)

GVA is the country's output minus its intermediate consumption (the spending required to produce goods and services), which is the difference between gross output and net output. GVA is important because it is used when calculating gross domestic product (GDP), a key indicator of the state of a nation's total economy. It can also be used to see how much value is added (or lost) from a particular industry, region, state, or province for policy-making purposes.

At the national level, GVA is sometimes favored as a measure of total economic output and growth over GDP or [gross national product](https://www.investopedia.com/terms/g/gnp.asp) (GNP). GVA is related to GDP through taxes and subsidies on products. It adds back subsidies that governments grant to certain sectors of the economy and subtracts taxes imposed on others.

### Business Level Gross Value Added

At the company level, this metric is often used to represent the GVA by a particular product, service, or corporate unit that the company currently produces or provides. Once the consumption of [fixed capital](https://www.investopedia.com/terms/f/fixed-capital.asp) and the effects of [depreciation](https://www.investopedia.com/terms/d/depreciation.asp) are subtracted, the company knows how much net value a particular operation adds to its bottom line. In other words, the GVA number reveals the contribution made by that particular product to the company's profit.

## Formula for GVA

﻿ $\begin{aligned} &\text{GVA}=\text{GDP} + \text{SP}-\text{TP}\\ &\textbf{where:}\\ &\text{SP}=\text{ Subsidies on products}\\ &\text{TP}=\text{ Taxes on products} \end{aligned}$﻿﻿﻿﻿﻿﻿

## Gross Value Added Example

Let's consider a hypothetical example for the fictitious country, _Investopedialand_. As a very simplified example of calculating GVA, consider the following data for our fictitious country:

*   Private consumption = $500 billion
*   Gross investment = $250 billion
*   Government investment = $150 billion
*   Government spending = $250 billion
*   Total exports = $150 billion
*   Total imports = $125 billion
*   Total taxes on products = 10%
*   Total subsidies on products = 5%

Using this data, the GVA can be calculated. The first step is to calculate the GDP. Recall that GDP is computed as private consumption + gross investment + government investment + government spending + ([exports](https://www.investopedia.com/terms/e/export.asp) - imports):

*   **GDP** = $500 billion + $250 billion + $150 billion + $250 billion + ($150 billion - $125 billion) = $1.175 trillion

Next, we calculate the subsidies and taxes on products. For simplicity's sake, assume that all private consumption is consumption of products. In that case, subsidies and taxes are as follows:

*   **Subsidies on products** = $500 billion x 5% = $25 billion
*   **Taxes on products** = $500 billion x 10% = $50 billion

With this, the GVA can be calculated as follows:

*   **Gross value added** = $1.175 trillion + $25 billion - $50 billion = $1.15 trillion

## What Is the Difference Between GVA and GDP?

Gross domestic product (GDP) measures the value of all the goods and services produced in a country. Gross value added (GVA) is the value added to other (purchased) goods and services, which are used to produce within an economy. GVA takes the GDP and adds the value of subsidies paid on those products, subtracting taxes paid on them.

## What Is the Difference Between GVA and Net Value Added?

Net value added is obtained by subtracting the consumption of fixed capital (the decline in value of fixed assets from aging, wear and tear, obsolescence, and other factors) from GVA.

## Why Is GVA Important?

Gross value added is important because it allows lawmakers to allocate resources and create economic policies that might boost the output of producers, sectors, regions, or industries.

## The Bottom Line

Gross value added is the amount of capital (value) added to an economy by sectors, regions, producers, or industries. It is calculated by subtracting the cost of all inputs, raw materials, and taxes from all sectors and industries from gross national product and adding subsidies.

> **Article Sources**
>
> 1.  Eurostat. "[Glossary: Gross Value Added](https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Gross_value_added)."