Does high GDP really mean a better economic status?
Does high GDP really mean a better economic status?
GDP is considered as the most effective indicator of economic development. Apart from GDP, there are two other indicators known as GPI (Genuine Progress Indicator) and HDI (Human Development Index) to estimate the economic condition of the country. However, the economists prefer to use GDP to analyze the economic health of the country. Does high GDP really indicate a better economic status? Should economists continue to use it?
Yes
• When economists consider per-capita GDP, they consider the actual measure of a nation’s “standard of living.”
• GDP is formed on three factors leading to economic welfare. The first factor is productivity. Measuring the output per worker-hour indicates how well the country is performing.
• One of the most important factors for a better economic condition is job creation, and rising GDP is associated with rising employment.
• There is no need to consider the non-economic variables like environment and leisure time to analyze the economy condition. They are subjective, and therefore, GDP study ignores it.
• GDP provides with normative results and is best tool to judge the state of business cycles in different conditions.
No
• GDP does not consider non-market activities based on consumption and production occurring outside the market economy.
• It doesn’t include many factors that have an impact on economy like household products, black marketing, illicit drug trade and many others.
• The major flaw in GDP is that it doesn’t consider the inequitable distribution of income and therefore cannot provide with fair economic status.
• GDP can sometimes be misleading in terms of economic welfare as it doesn’t consider negative externalities of growth.
• It ignores many important factors that are important in an economy. These factors are leisure time, environmental standards, cost of crime and many others.
• The GDP would increase even when people spend on alcohol, drugs or medicines but is that really a healthy sign for a society? or should we call it negative GDP?
Conclusion
High GDP necessarily doesn’t mean a better economic status. And, therefore it is wise to use GP and the HDI along with GDP to know the health of economy. The GP measures the overall improvement in economic conditions. It doesn’t exclude costs incurred to achieve growth. It even takes the non-economic variable in consideration that indirectly affects the state of an economy.
Discussion
- RE: Does high GDP really mean a better economic status? -Deepa Kaushik (09/26/14)
- GDP can be used as one of the important parameters to analyse the economic status of a country. But, it would be incorrect to call GDP as a marker for the economic status of any country. GDP has certain variables that do impact the country’s economy and forms an important aspect to denote the rise or fall of the economy.
The high GDP can give a positive sign towards the economic growth, however, we cannot term that to be a better economic status for the country. There are certain flaws while we analyse the GDP which leaves many important aspects that affect the economy. The GDP just revolves around the production and consumption index, whereas the scope of the country’s economic development is much beyond these variables.
There are certain variables that encircle the production and consumption ratio viz the labour hours, the productivity index, the infrastructure and the atmosphere of the production unit, the supply chain, corruption, black-marketing, illegal export of the goods i.e. smuggling etc. etc. which affects the production and consumption rate to a high degree. These factors definitely hold relevance while calculating the economic condition of the country.
Hence, we can just take GDP as one of the parameters to analyse the economic development. High GDP cannot mean the better economic status of the country; in fact it is the indicator for the probability of an improvement in the economy of the country.
