Valuing 'Free' Media Across Countries in GDP

36 Pages Posted: 18 Jul 2015

See all articles by Leonard I. Nakamura

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Rachel H. Soloveichik

Government of the United States of America - Bureau of Economic Analysis (BEA)

Date Written: July 2, 2015

Abstract

“Free” consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth since 2000 is too low because it excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013). Similar large effects on consumers occurred with the arrival of free radio and television entertainment. We provide an experimental methodology that uses previously established GDP measurement procedures to value advertising-supported entertainment around the world.

The experimental method raises global real GDP growth, but the increase is small. It is true that advertising-supported online entertainment has grown dramatically since 2000. Concurrently, advertising-supported print entertainment has been stagnant. The net impact is a real growth rate of 7.6% per year for advertising-supported entertainment. Furthermore, advertising-supported entertainment accounts for less than 0.5% of global GDP. As a result, our experimental methodology only raises overall real GDP growth by 0.019% per year.

Across countries, the experimental methodology raises nominal inequality. In 2011, nominal GDP for nations in the Organisation for Economic Co-operation and Development (OECD) increased by 0.18% more than nominal GDP in the rest of the world. Furthermore, nominal GDP in the United States increased 0.22% more than GDP in the rest of the OECD countries. However, prices for advertising-supported entertainment are also higher in wealthier nations. The net impact is a small reduction in real inequality.

Keywords: Advertising, Entertainment, Internet, Intangible, Measurement

JEL Classification: E01, L82, M37

Suggested Citation

Nakamura, Leonard I. and Soloveichik, Rachel H., Valuing 'Free' Media Across Countries in GDP (July 2, 2015). FRB of Philadelphia Working Paper No. 15-25. Available at SSRN: https://ssrn.com/abstract=2631621 or http://dx.doi.org/10.2139/ssrn.2631621

Leonard I. Nakamura (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3804 (Phone)
215-574-4364 (Fax)

Rachel H. Soloveichik

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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