Value Added

Definition

The gross Value added at basic price is defined as the difference between output at basic prices and intermediate consumption at purchaser’s prices.

In the context of Input-Output Analysis, Value Added is an additional row added to the Use Table or the Input-Output Matrix account for the other (non-industrial) inputs to production, such as labor, depreciation of capital, indirect business taxes, and imports.

The difference between an industry’s or an establishment's total output and the cost of it’s intermediate inputs. It equals gross output (sales or receipts and other operating income, plus inventory change) minus intermediate inputs (consumption of goods and services purchased from other industries or imported). Value added consists of compensation of employees, taxes on production and imports less subsidies (formerly indirect business taxes and nontax payments), and gross operating surplus (formerly “other value added”).

Formula

• VA1 + VA2 = GDP (=sum of factor incomes)
• w value added rwo vector

See Also

• Factors of Production

• Crash Course on Input-Output Model Mathematics
• Introduction to Input-Output Models using Python