The wealth of a nation is understood as the income of society, produced during a certain period. The division of labour is the foundation of economic growth and productivity.
The wealth of the nation describes how to generate greater production through the division of labour and the expansion of free trade, wealth, and social welfare. Greater productivity allows a person to generate goods that result in an exchange of these good items for other different surpluses which boost free trade.
The wealth of a person or a company as a proportion of GDP allows comparisons between countries and over time. This exercise is misleading when comparing two magnitudes of a different nature. The wealth is a stock-type variable and GDP is a flow type variable. The objective of this article is to provide detail about the total wealth of a Nation or developing countries. The wealth of a Nation is base on the basic economic growth concepts. Which allows to obtain an estimate of the value of the total assets of an economy as well as a division of this according to its main sources. Namely, the stocks of physical capital, capital human and natural capital.
Wealth of a Nation
Flows and stocks
The first economics concept to remember is that variables can be divided into two types: (1) flow variables and (2) stock variables, also known as stock variables by their English name. Flow variables are those whose value only makes sense when it refers to the given period of time in which they occurred. On the other hand, the stock variables are those whose value is not measure by period, but rather make sense without being associated with a specific period.
A commonly used metaphor in economic activity to illustrate the distinction between flow and stock variables is that of a bathtub, where the water filling the tub is a flow variable while the water in the tub is a variable of heritage.
GDP and wealth
GDP and wealth are closely related. The GDP is a measure of the total production of end-use goods and services generated by the residents of economic theory. Generally a country- in a given period -generally a year. The wealth of an economic theory refers to the value of all the productive resources. It has, including the physical assets, human capital, and natural resources that it has.
The wealth of a Nation, individual, a company, or a country can estimate in the same way as the value of any asset is obtained. That is, as the discounte sum of the flow of net income to which it is entitled to the possession of the said asset. There are many complications in estimating the value of an asset. Such as the choice of the interest rate path used to discount the flow. The appropriate measure of net income, etc. Which affect the value of the asset that is obtained.
So, it is clear that the GDP and the wealth of economic theory relate.The GDP is not a measure of the wealth of a country. But of the production of goods and services that obtaine from said wealth. GDP is a measure of the goods and services that an economy produces in a year. While wealth is the value of the physical, human and natural resources. The factors of production, that allow this production to be generated. Hence, the comparison of the wealth of an individual or company with the GDP of a country can provide a distorted picture of the size. That is a relative power, or participation of individual agents in an economy.
An estimate of the value of the total capital stock (physical, human, and natural)
If you wanted to compare the wealth of an individual with the wealth of an economy. The question would arise about how economist calculates the wealth of a country. In fact, there are few estimates of the value of wealth in economies. The reason is that estimates of the value of certain assets in an economy are difficult to obtain. Since information is generally not available about the inventories of assets, their market price, or both. But it is possible to obtain an estimate of the magnitude of the wealth of an economy. If you are willing to make certain simplifying assumptions. For this it is convenient to remember the main productive resources, also called factors of production, that an economy has:
Human capital: defined as the work and effort of labor, as well as their knowledge, skills, abilities.
physical capital: including machinery, equipment, fixed structures, buildings, houses, land, automobiles, durable goods, etc
Natural capital: that is, its natural resources, both renewable and non-renewable
So, the value of physical capital is the component of the wealth of a nation that is easier to value. Since there are market prices of the value at which machinery, equipment, fixed structures, buildings, houses, land, automobiles, are exchanged. Durable goods, etc.
An estimate of the value of the physical capital stock that households own
The value of the stock of physical capital, we should add the value of the stock of human capital that the country has. In the same way that the present value of the flow of net income associated with some asset was used to obtain an estimate of the value of the underlying asset, the earned income of individuals can also be used to obtain a measure of the value of the underlying asset. Which in this case, it is the human capital they possess, defined as the set of abilities, skills, and knowledge that allow individuals to be productive.
Individual wealth as a percentage of the different nations wealth
The different nations’ wealth lies in greater measured in the human capital of people than in the physical capital of companies and households, or in the stock of natural resources.
In fact, the value of the human capital stock is more than twice the value of the physical capital stock. And is greater than the sum of the values of the physical and natural capital stock. Indeed, as the World Bank study suggests, the share of intangible capital in total wealth. Which includes human capital, is increasing as developing countries.
So, the financial markets play important role in the modern economic thought of developing countries.
What does the wealth of nations mean?
The different nations wealth consists of money or gold and silver is the widespread concept, naturally generate through the dual function of money as an instrument of exchange and a measure of value. Since money is a measure of value. We measure the value of all other commodity by the amount of money for which they are exchanged. A rich country, like a rich person, is a country that has an abundance of money. Therefore the accumulation of the greatest possible amount of gold and silver in a given country recognize as the most reliable way of its enrichment. So, the entire industry of a given society as a whole can never go beyond the limits determined by the size of the capital of the society.
Why are some countries rich and others poor?
It is not income but wealth that best measures the achievements of society. This wealth is the value of individual rights, the result of the expected behaviors. The countries are rich and others poor on the basis of four essential pieces.
Productivity-The economic growth is the country’s factors of production that fit physical capital, human capital, technological knowledge, and entrepreneurs. All together to stimulate higher productivity in a population.
Incentives- different incentives produce different results in different sectors of the economic thought.
Institutions- Institutions, through tools such as property rights, cultural norms, credible laws, and political economy stability, create incentives of different kinds.
Wealth- The wealth of nations is its gold and other mines etc.
Does technology drive the growth of government?
One of the pillars of the growth of the country economy has been the advancement of technological systems. Today in the face of new technologies that have been transforming and altering our world more. That have allowed us to give way to a process of globalization, companies have been forced to a continuous positive or negative change for the economic thought of the countries.
The stock market of large high-tech companies, has a high number of favored people. Where industries expanded more, increasing levels manpower and job opportunities for labor peoples. Through this the economic thought situations of the country also become stronger. Large companies already see the trade in a different way. They make high investments in technological innovations, renewing their machinery, and implementing new methods. That facilitate the production of the country. The development of these technological pathways provides a positive aspect such as saving time, reducing the efforts of workers and labour that allows a progressive economy.
How do you measure the value and success of an economy?
The best-known measure is gross domestic product (GDP): the monetary value of the goods and services. That an economy produces in a given period. It represents the market value of the final production of goods and services in a country. That carried out by residents and non-residents in a given period. In the measurement, we have to cover many types of products and services of the different sectors of the economy. It is necessary to consider the market prices. The prices measure the amount of money that labor people are willing to pay for goods and, therefore, reflect their value.
How to calculate GDP?
GDP growth reflects the economic growth evolution of a country (the rate at which its production of goods and services and, therefore, its income increases). GDP growth ultimately reflects the modern economics evolution of a country. There are three ways to calculate GDP: using the expenditure method, using the value-added method, and using the income method.
Expenditure method: consists of adding all the final expenses or aggregate demand of the different agents of modern economics.
Value-added method: The method base on the sum of the sales or supply of producers (what bought must be equal to what it sells).
Gross Added Value: The value-add the data of companies grouped by sector.
Income method: it consists of the sum of three elements. The income of the employees (RA), the Gross Operating Surplus (EBE), and the indirect taxes net of subsidies. Employee income includes salaries, extra-salary compensation, and company contributions to social security.