Final Domestic Demand is all expenditure by households on things like food, rent and travel (Personal Consumption Expenditure), all Net Expenditure of Government on providing public services and all Fixed Capital Investment in the country in new building, machinery and so on.
Total Domestic Demand (TDD) is Final Domestic Demand plus the value of physical changes in stocks.
TDD contains many of the elements used to calculate Gross Domestic Product (GDP) by the Expenditure Method, and so it is an indicator of how much the economy as a whole is growing. It excludes imports and exports which are part of GDP.
In Ireland, imports and exports are very large but are mostly related to transactions of foreign-owned corporations (including Contract Manufacturing) that are high in value, but in the end have little impact on the Irish economy. So when we count imports and exports in GDP, some of the large values we include do not reflect much on the domestic economy. By excluding imports and exports, TDD can give a better indication than GDP of how the domestic economy is doing.
Modified Total Domestic Demand goes further in trying to exclude those large transactions of foreign corporations that do not have a big impact on the domestic economy.
Expenditure of Households and Government is the same in Modified Total Domestic Demand and TDD, but the capital investment is adjusted to exclude certain items that are in TDD. Aeroplanes purchased by leasing companies in Ireland but then operated in other countries are part of capital investment in TDD but are excluded from Modified Total Domestic Demand. Intellectual Property(IP) purchases are large transactions which generally only relate to foreign-owned corporations and generate profit that flows out of the economy with relatively little impact. IP is a part of the total capital investment included in TDD but excluded from Modified Domestic Demand.
Modified Total Domestic Demand is therefore a smaller number than GDP and it more truly reflects how Households, Government and domestic Corporations in Ireland are doing. While Modified GNI approaches GDP from the Income Method, Modified Total Domestic Demand approaches it from the Expenditure Method. Both are indicators for Ireland that remove the distorting effects of globalisation on GDP.
