Understanding GDP: Expenditure Method & Value Stream Networks

As promised, a while back, here is a continuation of my journey on understanding GDP, for the purpose of link economic outcomes to system behaviour. In this blog I’ll look at the expenditure method (GDP(E). I’ve skipped over the income method for the moment, as GDP(E) is of more interest to me, in this case, linking economic outcomes to value stream, indeed value stream network behaviour.

Just as a reminder I used the ONS document …. as source reference for creating the simple one-page cascade diagram (see below Fig 1). Here I have concentrated on the dominant categories, and of interest to me, namely Household Final Consumption Expenditure and Government Final Expenditure, as they represent the points at which the value created upstream is notionally consumed or realised. In reality this is only the juncture at which the value embodied in a product or service is paid for, but its a good starting point.

Of particular interest is the potential for showing the connections bewteen specific value streams and networks of value streams through to a point at which a measurement of economic importance is taken. By way of example (see Fig 2) I have illustrated some simple connections back through the value stream network for the delivery of electricity to the point of consumption (in part ,because I’ve worked in a “branch” of this network for the last 18 years).

 Figure 2

For me it is not that we can take a number and add it to GDP, but that we can see the web of value creation behind one of those numbers and thus gain insight, from the perspective of the economic system in question. We can also add structure to our arguments and if necesary build improvement models and tracking devices to gauge our success, as we might in business. (See Research Pages)

If I were an economic policy-maker, politician even, could this extra insight be of use ?

Having made the link we should also be in home territory for a systems-oriented, maybe lean practioner i.e. one that “sees the whole”, who is not just in a position to apply, philosophy, tools and techniques within the four walls of a particular business, but within a network of co-dependent businesses and satkeholders – within the Value Stream Network.


(one for the lean and systems world)

The Balance of Trade of an economy is another interesting statistic, as it has some equivalence to the “profit/loss” of an organisation or “net gain/loss” of a general system, if we viewed an economy as a black box (see Fig 3). One can also identify the points within a value stream network at which imports and exports occur. I’ll come back to this one.

Figure 3 – Black-boxing an Economy


About Dr_JAH

Independent Researcher
This entry was posted in GDP, Linking Performance to Activity, Policy Deployment, System Dynamics, Value Flow, Value Stream Networks, Visual Economy and tagged , , , , , , . Bookmark the permalink.

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