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GDP growth is a standard economic indicator that is used to measure the economic growth in a country by dividing the Gross Domestic Product (GDP) by the number of the countrys citizens. The higher the GDP, the better is the countrys economic performance and, presumably, the quality of life in it. Nevertheless, before GDP was implemented as a measurement tool, GNP (Gross National Product) was used (Carr par. 6).
The difference between them is simple but highly relevant: the profits of multinational corporations that operate in developing countries would be added to the developed countrys GNP (the country where the multinational corporation was established or came from), whereas GDP counts the profits to the developing country because the manufacture of products is established there (Carr par. 6). Therefore, despite the fact that the profits are reinvested in the home country of the multinational corporation, the GDP of the developing country is growing according to the GDP per capita measurement, thus showing that the quality of life is growing as well. As can be seen, GDP growth cannot always be an accurate measurement tool for the countrys economic growth because it depends on various factors.
Kubiszewski et al. point out that GDP has been mistakenly used as a broader measure of welfare (57). The major problem with it is that it does not differentiate between a welfare-enhancing activity and a welfare-reducing activity, Kubiszewski et al. argue (57). Some of the details that GDP does not include are the transactions that enhance welfare but do not involve monetary transactions. They fall outside the market and are not included in the overall GDP per capita, although they do have a positive influence on the economy or quality of life (Kubiszewski et al. 57).
Another issue that needs to be considered is income inequality. The income inequality can significantly decrease trust and happiness rates among citizens, although the countrys GDP will indicate the high quality of life (Kesebir par. 4). Inequality is also capable of decreasing the quality of life and happiness in developed countries, thus mitigating the positive relationship between economic growth and overall happiness (Kesebir par. 6). It should also be noted that the economic growth in developing countries where the population is poorer compared to developed countries does not always lead to increased happiness. As Kesebir explains, either the poverty rates or inequality rates (or both) are responsible for the lacking relation between GDP growth and quality of life (par. 10). Therefore, GDP cannot be used as the only tool for a countrys economic performance and quality of life.
Various alternatives to GDP exist. Van den Bergh and Antal examine ISEW and GPI as possible options (4). The Index of Sustainable Economic Welfare measures services that directly affect human welfare by adding or deriving services that either can or cannot directly influence human welfare (Van den Bergh and Antal 4). As to GPI, it corrects such additional categories as voluntary work, criminality, divorce, (loss of) leisure time, unemployment and damage to the ozone layer (Van den Bergh and Antal 4).
Giannetti et al. suggest the National Accounting Matrix, including Environmental Accounts, as a tool to evaluate the influence of environmental degradation on national income (13). Costanza et al. do not provide a particular framework but stress that since material consumption beyond need does not always positively influence well-being, we need to a create a new understanding of the economy, as well as a new model of it that will be based on the new-world context (94). As can be seen, GDP is perceived as an insufficient tool for the measurement of economic growth.
Works Cited
Carr, Terrence. A Critique of GDP Per Capita as a Measure of Wellbeing. Econpress, 2017.
Costanza, Robert, et al. A Short History of GDP: Moving towards Better Measures of Human Well-being. The Solutions Journal, vol. 5, no. 1, 2014, pp. 91-97.
Giannetti, B. F., et al. A Review of Limitations of GDP and Alternative Indices to Monitor Human Wellbeing and to Manage Eco-System Functionality. Journal of Cleaner Production, vol. 87, no. 2, 2015, pp. 11-25.
Kesebir, Selin. When Economic Growth Doesnt Make Countries Happier. Harvard Business Review, 2016,
Kubiszewski, Ida, et al. Beyond GDP: Measuring and Achieving Global Genuine Progress. Ecological Economics, vol. 93, no. 1, 2013, pp. 57-68.
Van den Bergh, Jeroen, and Miklós Antal. Evaluating Alternatives to GDP as Measures of Social Welfare/Progress. Econstor, 2014.
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