GDP – Gross Domestic Product
Gross Domestic Product refers to the market value of all final goods and services produced within in a given period of time. This is calculated by GDP = C + I + G + (X – M)
GDP tracks the health of a country’s economy, it represents the value of all goods and services produced over a specific time period. Economists can use GDP to determine whether an economy is growing or recessing. However, this metric of measurement has its limitations one being that GDP counts disasters such as tornadoes or earthquakes as an economic bonus. This is because after these disasters the country spends lots on rebuilding and as a result will boost the country’s GDP.
Why would we want to track a country’s development?
Being able to track and measure a country’s development allows us to understand more about the world’s economy and allows us to compare which countries are performing best in key aspects such as health, well-being, income, opportunities etc.
People in power could find use in these metrics when trying to see what their country needs to work on as well as being able to tell which other countries are doing the right things and then potentially following along and copy what they are doing.
Since GDP isn’t always the most accurate way to measure a country’s growth what other metrics can we use? A couple other alternatives that we can use to track a country’s development are:
- GNH – Gross National Happiness
- HPI – Happy Planet Index
- HDI – Human Development Index
- GPI – Genuine Progress Indicator
Gross National Happiness
The GNH metric was developed in 1972 by the king of Bhutan. This metric was inspired by the Buddhist principles and looks 9 variables: living standards, health, good governance, ecological diversity, resilience, time use, psychological well-being, cultural diversity and resilience and community vitality.
A drawback to this metric is how difficult and complicated it is to retrieve this type of information. Unlike GDP we can’t just simply take out numbers and stick them into an equation, this metric requires thorough interviewing and is very time consuming.
Happy Planet Index
Developed by the New Economics Foundation, the HPI tracks wellbeing using 4 factors: ecological footprints, inequality, wellbeing and the life expectancy of a country.
A drawback to this metric is the very limited numbers of factors that are taken into account. The data misses some important factors such as the ones that are used in the GNH metric.
Human Development Index
The Human Development Index was designed to focus on opportunities and capabilities, rather than just focusing on economical growth or environmental sustainability.
A drawback to this is that it doesn’t take into account environmental factors or well-being factors such as safety.
Genuine Progress Indicator
In my opinion this metric is one of the most effective and accurate methods used to calculate a country’s development. This metric is similar to GDP except it also accounts for environmental, social and economic indicators. This gives us a more accurate look at a country’s development.
Why would we want to use other metrics and why is GDP not the only metric used when measuring a country’s development?
GDP does a good job at measuring a country’s economic growth, however it lacks when taking into consideration health, well-being and opportunities.
GDP doesn’t see good or bad it only cares about money spent, when an earthquake hits and a country goes into a state of rebuilding the GDP will increase significantly due to the increase in spending. Economically this is seen as a positive but its quite obvious that a country is better off if the earthquake had never hit.
GDP can only account for goods and services that are regulated so things that fly under the radar such as black market activity, we cannot account for.
GDP doesn’t look at the environmental damages that two different countries face. A country could have significantly more polluted air than another and GDP will not be able to capture this.
Take Away Points:
- GDP tracks the development of a country’s economy and not any other factors such as health, well-being, opportunities.
- There are many alternatives to GDP but its difficult to find one specific one that will give us the best answer
- A great alternative to GDP is GPI because it takes in more factors and offers us a more well rounded answer when measuring a country’s development.
Year 11 MHS Economics 2020 