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Aggregate earnings and gross domestic product: International evidence

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  • Vaibhav Lalwani
  • Madhumita Chakraborty

Abstract

Recent studies in macro accounting suggest that changes in aggregate accounting earnings can predict quarterly GDP growth in the USA. Our objective in this study is to test the robustness of the association between aggregate earnings and real GDP growth across multiple countries and for different definitions of aggregate earnings. We test whether aggregate earnings changes predict future economic growth in eight countries – Australia, Canada, China, India, Japan, South Korea, the UK, and the USA. We find positive evidence regarding the generalisability of the aggregate earnings – real GDP relation in an international context. In additional tests, we find that economic forecasters appear to underreact to aggregate earnings information. Our results show that aggregate earnings lead economic growth and forecasts of real GDP growth can be improved by incorporating aggregate earnings information. Further, we also test if negative earnings changes contain more information than positive earnings changes and find only modest evidence in favour of this hypothesis. The results are robust to alternative statistical methodology and the removal of the USA data from the sample.

Suggested Citation

  • Vaibhav Lalwani & Madhumita Chakraborty, 2020. "Aggregate earnings and gross domestic product: International evidence," Applied Economics, Taylor & Francis Journals, vol. 52(1), pages 68-84, January.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:1:p:68-84
    DOI: 10.1080/00036846.2019.1640859
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    Cited by:

    1. Thanh NGUYEN, Phong & Le Hoang Thuy To NGUYEN, Quyen, 2020. "Critical Factors Affecting Construction Price Index: An Integrated Fuzzy Logic and Analytical Hierarchy Process," MPRA Paper 103437, University Library of Munich, Germany, revised 31 May 2020.

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