Gross Domestic Product at Factor Cost

Production is the co-operative working of all the factors of production, land, labour, capital, and enterprise. In exchange, they receive their remuneration in the form of rent, wages, interest and profit. These payments to factors are called production cost or factor cost. From the view point of the firm, it is cost and from the view point of factors, it is their income. Gross domestic product at factor cost is also called gross domestic income. It is equal to the gross value added at factor cost.

Definition

According to Hanson, “The Gross Domestic Product at factor cost is the sum of net value added by all the producers in the domestic territory of the country and consumption of fixed capital during an accounting year.”

Gross Domestic Product at Factor Cost = Net Domestic Product at Factor Cost + Depreciation

There is another way of calculating the GDP at factor cost. That is, by deducting net indirect taxes from gross domestic product at market price.

GDP at Factor Cost = GDP at Market Price- Indirect Taxes + Subsidies

Difference between GDP at factor cost and GDP at market price:

Gross domestic product at factor cost includes all the elements of GDP at market price except net indirect taxes (indirect taxes-subsidies).

GDP at Factor Cost = GDP at Market Price-Indirect Taxes + Subsidies

But,

GDP at Market Price = GDP at Factor Cost + Indirect Taxes – Subsidies