One ‘Manly’ GDP:

A GDP Overview of Isle of Man

Seamus Gunn

California Maritime Academy

One ‘Man’ly GDP

The Isle of Man is a small island centered in the Irish Sea and is part of British rule. Although it is part of Great Britain, the Isle of Man has a considerably decent gross domestic product (GDP) that makes it possible to measure it as a region of its own. Before discussing the GDP of the Isle of Man it is necessary to briefly understand the Isle of Man and its society. It is also necessary to have a decent understanding of what GDP is and how it is measured. Once these subjects have been briefed upon, it is then possible discuss more in depth about the GDP of Isle of Man and how to find it. After finding the GDP, it is important to understand the contributors to GDP and what characteristics in the country have an impact on it. Finally, it is critical that sources of error are discussed and assumptions that were figured in the calculation are addressed. Using the income method, the GDP of Isle of Man in 2003-2004 has been calculated to be 1,341,848£, which is due to the island’s new developments of high-technology companies and financial institutions.

Before simply studying the GDP of a country, region or island it is important to know some basic information about the area, its people and its history. As mentioned before, the Isle of Man is situated in the Irish, half-way between Ireland and Great Britain, yet it is considered part of Britain. According to the Wikipedia Online Encyclopedia, Its inhabitants are known as Manx, who descend from Irish and Viking invaders who settled the land from 700 A.D. to 1079 A.D. The Island did not actually come under British control until the fourteenth century. Traditionally, inhabitants have lived as fishermen and sheppards, however; jobs have dramatically changed in modern times. The CIA World Factbook states that the Isle of Man is a popular area for tourism and its economy is strongly based off of England. The Isle of Man’s changing society is the driving force in the development of their modern GDP.

Calculating GDP

According to the Webster’s Universal College Dictionary (2001), gross domestic product is defined as, “the total monetary value of all goods and services produced in a country during one year.” This means the total amount of money worth all the work done in a country, over a given time period (one year). Calculating a GDP can be a long and tedious task and sometimes can become rather confusing as well. Part of the reason is because there are three different ways to calculate GDP. According to the Macroeconomics Manual (19 March 2008), the methods include: 1) The Income Method, 2) The Output Method and 3) The Expenditure Method. All three methods are linked together in a concept called circular flow of income. The way they are linked is Expenditure must = Output which must = Income. This is because the value of a product bought must equal the value of its production (output), and the value of that must equal the wages paid to the workers (income). All are effective means of calculating GDP; however they all differ very much in that they require different pieces of information to calculate it.

The Income Method simply adds up all forms of income including profits and wages to calculate GDP. Additionally, the income method requires capital income to be included. Capital income is payment for rent of a building, machine or even a patent. The Income method can prove to be very easy and useful if you simply have a population’s incomes listed.

The Output Method is a calculation of everything sold in a population. The output method become difficult though when you must consider that resources already paid for to make a final product cannot be included. The only part that adds on to output is the increase in price added as the product makes its way through each stage of production. This can get very tedious when trying to calculate for an entire population.

According to Principles of Macroeconomics 2007, the final method, the Expenditure Method, is calculated off of 4 parts: consumption(c), investment(I), government purchases(G) and net exports(NX). Consumptions include consumer durables, nondurables and services which basically range from everything citizens pay for from food to education. Investment is “spending by firms on final goods and services, primarily capital goods. This means spending on anything that will actually prove useful and may help earn money in the future. Government purchases are simply things the city, state and federal governments pay for that cover the whole public such as defense and public education. Lastly is net exports, which is the value of the exports a country makes, minus the imports(NI) that it takes in. The equation for the expenditure method is simply C+I+G+(NE-NI)= GDP. The expenditure method is another relatively easy method to use because it is broken down into smaller parts.

GDP of Isle of Man

After knowing the methods of calculating GDP, it is simply necessary to find the economic information available and choose which method to use. The Isle of Man has some useful research on its economy and GDP, however, it is somewhat difficult to find hard facts or statistics of the GDP components because it is not a sovereign state. Although, it is possible to find plenty of information to use the income method of calculating GDP. As mentioned before, the income method involves adding all the salaries and wages of citizens and capital income paid. By finding the total income of each industry and the capital income of the Isle of Man, it is possible to calculate GDP. According to the Macroeconomics Manual (19 March 2008) Income is grouped into roughly seven categories: 1) Income from employment, 2) Income from self-employment, 3) Profits of companies, 4) Surplus of public corporations, 5) Surplus of general government enterprises, 6) Rent (part of capital income) and 7) “Imputed charge for consumption of non-traded capital,” in other words, transaction/work made with no documented earnings.

By using the Isle of Man National Income Report 2003/2004, earning of every industry on the Isle of Man listed in the report can be categorized into one of the seven categories of income included in GDP. The report lists the primary industries of work in the Isle of Man and gives the total earning of each industry. The Industries and their earnings are most easily shown in a chart:

Agriculture, Forestry & Fishing -(self employment)

18,891£

Manufacturing – (employment)

78,486£

Engineering – (employment)

29,930£

Mining – (employment)

5636£

Construction – (employment)

145736£

Utilities -(public corp.)

33498£

Transport and Communication -(public corp.)

86420£

Distribution -(companies)

118421£

Banking -(public corp.)

304,917£

Insurance, Finance and Business Services -(companies)

246,173£

Information and Communication Technology -(public corp.)

55,270£

Legal and Accountancy Services -(companies)

72,611£

Education -(Government)

52,960£

Medical & Health Services -(gov./public corp.)

79,802£

Tourism – (employment)

13,366£

Entertainment – (employment)

31,379£

Public Administration -(public corp.)

70,173£

Other Services -(non documented/other)

103036£

TOTAL

1,546,705£

As shown above, each industry is categorized into one of the parts of income. With all of the industry’s income listed, it was possible to come up with the total of 1,546,705£ as the total earnings of the Isle of Man during the year 2003/2004. This calculation includes national earnings and capital income. The Isle of Man National Income Report 2003/2004 subtracts housing with adjustments from GDP because they do not see it as part of earnings. The figure given for “housing less adjustments” is 204,857£. So the final GDP is the national earnings minus housing except for adjustments. This is (1,546,705£) – (204,857£) = 1,341,848£.

Key Industries

By looking at the chart above you can tell what the key industries that play a role in Isle of Man’s GDP are, but it is important to take a broader look at the industries and see what makes up its economy and how it is changing. It is quite amazing that a tiny island such as the Isle of Man, with a population of just 75,831 people, has developed so much from a small fishing Island, to producing a GDP of 1,341,848£. According to the CIA World Factbook, it would appear that this is due to the unique interests the Isle of Man offers and the link to the powerful economy of Great Britain.

Whereas the GDP of Isle of Man has probably traditionally been that of a poor country, relying on fishing, raising livestock and trading, the GDP is now mostly held in high tech Industries. According to the Times Online: Business City Guide (2005), these high tech industries include business, banking, insurance and financial jobs. By looking at the industries chart it can be calculated that (Insurance, Finance and Business Services+ Legal and Accountancy Services+ Banking)/ total National Income = 40% of all Income. Wikipedia states that the Isle of Man government is attributing to the increase in high tech industry by giving incentives for people to work in high tech jobs and encourages corporations to build offices on the island. This has lead to a dramatic decrease in the historical output-type of the country and revolutionized the GDP. As high tech corporations open jobs on the Isle of Man, rural industry will decline and business jobs in finance, insurance and banking will begin to dominate. This has been showing to have a drastic improvement on the economy by 1) lowering unemployment: unemployment in the Isle of Man is only 2.4%. 2) Increase in average wage per worker, which implies- 3) Increase in GDP: GDP increased 9.1% between 2003/2004 alone.

Aside from a changing industry, other factors influence a high GDP in the Isle of Man as well. The government charges very low tax. Wikipedia Online Dictionary states that Isle of Man charges no corporation tax, wealth tax, inheritance tax or capital gains tax. With its citizens not paying as much on tax, consumers are able to purchase more goods which increases GDP. Additionally, Isle of Man holds almost all of its trade with the United Kingdom and has access to trade benefits in the European Union. In fact, the Isle of Man imports electricity through the world’s longest underwater power cables. Trade benefits and tax breaks also give a substantial advantage to the increasing GDP of the Isle of Man.

The Isle of Man supports some other interesting industries besides high-tech, which should be considered as significant contributors to GDP. A recent hit on the Isle of Man is the online gambling industry. According to the Isle of Man E-gaming Gambling Control Commission, the government has also supported online gambling corporations on the island. In fact, the island now serves as headquarters for Pokerstars, RNG Gaming and Get2, all leading corporations in the online gambling industry. There are other interesting industries taking part on the Isle of Man as well. These include the film industry. The government actually assists in the payment of television filmed on the island. Perhaps the most exciting industry that is lured to the Isle of Man is the racing industry. Due to the rural roads, most of the island has no speed limits. This attracts many motorcycle and automobile races to the roads. It also serves as an area for testing many high speed drives. With these interesting industries based on the Isle of Man, a surprising amount of tourism occurs. Regardless of the cold weather and fog surrounding the island located in the rough Irish Sea for much of the year, people still make it out for the races or for the beauty of the country side.

Error Source

Calculating Gross Domestic Product can be a difficult thing and has a lot of room for miscalculations. The process is separated into three different ways of calculating, all using different measurements. Although the three methods should theoretically produce the same measurement for GDP, in many cases they come out slightly off from each other. Economists have typically used the expenditure method as the most accurate figure of GDP. Many economists also use the income method as a reliable method of calculation as well. Just recently, a new method known as chain weighting is being used to calculate GDP with even more accuracy. In any case, the method of usage is not extremely important because measuring GDP is never going to be exactly precise anyways.

There are contributing factors that are not calculated by the methods that are always left out of GDP. The greatest factor that is unable to be accounted for in GDP is self-performed work. This includes everything to do with typical house work that goes unpaid such as doing dishes, mowing the lawn, working on the car ect. Household work is work done in an economy and is therefore considered output; however, because no income is earned, it is impossible to record the quantity of work done and how much it is worth. GDP cannot completely be calculated without the inclusion of this work. There are transactions that also are not included in GDP. Any type of bartering or illegal trade is not included in GDP. For example, when a kid mows his neighbor’s lawn and earns $10, no record of the transaction is made. The illegal marijuana industry is huge worldwide (not Isle of Man because of the climate and the older average age of citizens) and a substantial amount of money traded is lost from GDP figures because the trade is part of the black market. Although it is important to find accurate figures for GDP by using the best methods the correct way, the most accurate calculations with the most accurate information will still not include every value of production in a country.

It is also important to mention the age of the figures used. The calculations made above are figures made from the year of 2003-2004. As mentioned previously the GDP of Isle of Man is in a rapid acceleration and has increased significantly from 2004 to 2008.

By using the income method for calculating gross domestic product, the value has accurately been calculated to be 1,341,848£. It is important to know what GDP is and the methods that can be used to calculate it. The income method is an effective method of calculating GDP of Isle of Man because of the ease of access to the earning of the island. All that was required was to add the national earnings and capital income (included together in chart). It is also important to break up the earnings into separate industries and look at how the region’s economy is built. From the information, it is clear that Isle of Man has an economy built upon high-tech industry including financial, insurance and legal services. Lastly, error in GDP must be considered. In general, the greatest error in GDP measurement is because of uncounted work. House work and illegal trade are the biggest contributing factors to this loss. Overall, it is amazing how a small island that is under British rule can have such a significant GDP that is continuing to grow.

Bibliography

“Economy of the Isle of Man.” Wikipedia Online Encyclopedia. 20 March 2008.

< http://en.wikipedia.org/wiki/Economy_of_the_Isle_of_Man&gt;

Isle of Man National Income 2003/2004. Economic Affairs Division, Isle of Man Government, Treasury.

“Isle of Man.” Central Intelegence Agency World Factbook. 20 March 2008.

< https://www.cia.gov/library/publications/the-world-factbook/geos/im.html&gt;

“Gross Domestic Product.” $treat Authority.com. 20 March 2008.

<http://www.streetauthority.com/terms/g/gdp.asp&gt;

“Isle of Man Overview.” The Times Online Buisiness City Guide. 20 March 2008.

<http://www.bcglocations.com/uk/isleofman_channelisles/isleofman_intro.html&gt;

“Isle of Man E-Gaming Gambling Control Commission.Poker 2010. 20 March 2008.

<http://www.poker-2010.com/online/iom/&gt;

Webster’s Universal College Dictionary. Random House. New York. 2001.

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