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Gross domestic product (GDP) is a
monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
measure Measure may refer to: * Measurement, the assignment of a number to a characteristic of an object or event Law * Ballot measure, proposed legislation in the United States * Church of England Measure, legislation of the Church of England * Mea ...
of the market value of all the
final good A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
s and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is often revised before being considered a reliable indicator. GDP (nominal) per capita does not, however, reflect differences in the
cost of living Cost of living is the cost of maintaining a certain standard of living. Changes in the cost of living over time can be operationalized in a cost-of-living index. Cost of living calculations are also used to compare the cost of maintaining a c ...
and the
inflation rates In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing
living standards Standard of living is the level of income, comforts and services available, generally applied to a society or location, rather than to an individual. Standard of living is relevant because it is considered to contribute to an individual's quality ...
between nations, while nominal GDP is more useful comparing national economies on the international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy. The ratio of GDP to the total population of the region is the
per capita GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
(also called the Mean Standard of Living). GDP definitions are maintained by a number of national and international economic organizations. The
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
(OECD) defines GDP as "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production and services (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)". An IMF publication states that, "GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year)." GDP is often used as a metric for
international comparisons International comparisons, or national evaluation indicators, focuses on the quantitative, qualitative, and evaluative analysis of one country in relation to others. Often, the objective is to compare one country's performance to others in order ...
as well as a broad measure of economic progress. It is often considered to be the "world's most powerful statistical indicator of national development and progress". However, critics of the
growth imperative Growth imperative is a term in economic theory regarding a possible necessity of economic growth. On the micro level, it describes mechanisms that force firms or consumers (households) to increase revenues or consumption to not endanger their in ...
often argue that GDP measures were never intended to measure progress, and leave out key other
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
, such as
resource extraction Extractivism is the process of extracting natural resources from the Earth to sell on the world market. It exists in an economy that depends primarily on the extraction or removal of natural resources that are considered valuable for exportation w ...
,
environmental impact Environmental issues are effects of human activity on the biophysical environment, most often of which are harmful effects that cause environmental degradation. Environmental protection is the practice of protecting the natural environment on t ...
and unpaid domestic work. Critics frequently propose alternative economic models such as doughnut economics which use other measures of success or alternative indicators such as the OECD's
Better Life Index The OECD Better Life Index, created in May 2011 by the Organisation for Economic Co-operation and Development, is an initiative pioneering the development of economic indicators which better capture multiple dimensions of economic and social progre ...
as better approaches to measuring the effect of the economy on
human development Human development may refer to: * Development of the human body * Developmental psychology * Human development (economics) * Human Development Index, an index used to rank countries by level of human development * Human evolution, the prehistoric ...
and well being.


History

William Petty Sir William Petty FRS (26 May 1623 – 16 December 1687) was an English economist, physician, scientist and philosopher. He first became prominent serving Oliver Cromwell and the Commonwealth in Ireland. He developed efficient methods to su ...
came up with a basic concept of GDP to attack landlords against unfair taxation during warfare between the Dutch and the English between 1654 and 1676.
Charles Davenant Charles Davenant (1656–1714) was an English mercantilist economist, politician, and pamphleteer. He was Tory member of Parliament for St Ives (Cornwall), and for Great Bedwyn. Life He was born in London as the eldest son of Sir William Davena ...
developed the method further in 1695. The modern concept of GDP was first developed by
Simon Kuznets Simon Smith Kuznets (; rus, Семён Абра́мович Кузне́ц, p=sʲɪˈmʲɵn ɐˈbraməvʲɪtɕ kʊzʲˈnʲɛts; April 30, 1901 – July 8, 1985) was an American economist and statistician who received the 1971 Nobel Memorial Pr ...
for a 1934
U.S. Congress The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, composed of a lower body, the United States House of Representatives, House of Representatives, and an upper body, ...
report, where he warned against its use as a measure of welfare (see below under '' limitations and criticisms'').Congress commissioned Kuznets to create a system that would measure the nation's productivity in order to better understand how to tackle the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
.Simon Kuznets, 1934. "National Income, 1929–1932". 73rd U.S. Congress, 2d session, Senate document no. 124, page 5-7 Simon Kuznets, 1934. "National Income, 1929–1932". 73rd U.S. Congress, 2d session, Senate document no. 124, page 5-7 Simon Kuznets, 1934. "National Income, 1929–1932". 73rd U.S. Congress, 2d session, Senate document no. 124, page 5-7. https://fraser.stlouisfed.org/title/971
After the
Bretton Woods conference The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, Unite ...
in 1944, GDP became the main tool for measuring a country's economy. At that time
gross national product The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
(GNP) was the preferred estimate, which differed from GDP in that it measured production by a country's citizens at home and abroad rather than its 'resident institutional units' (see
OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the
U.S. Department of Commerce The United States Department of Commerce is an United States federal executive departments, executive department of the Federal government of the United States, U.S. federal government concerned with creating the conditions for economic growth ...
under
Milton Gilbert Milton Gilbert (1909 – September 28 or 29, 1979) was an economist and finance expert who worked at the United States Department of Commerce, Organisation for European Economic Cooperation (OEEC) and Bank for International Settlements. Early li ...
where ideas from Kuznets were embedded into
institutions Institutions are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions a ...
. The history of the concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by
intangible asset An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. This is in contrast to physical assets (machinery, buildings, etc.) and finan ...
creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In the words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." GDP became truly global in 1993 when China officially adopted it as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system.


Determining gross domestic product (GDP)

GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy. The most direct of the three is the production approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers", colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes.


Production approach

Also known as the Value Added Approach, it calculates how much value is contributed at each stage of production. This approach mirrors the
OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
(Organisation for Economic Co-operation and Development) definition given above. # Estimate the gross value of domestic output out of the many various economic activities; # Determine the
intermediate consumption Intermediate consumption (also called "intermediate expenditure") is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts (NIPA) and the European ...
, i.e., the cost of material, supplies and services used to produce final goods or services. # Deduct intermediate consumption from gross value to obtain the gross value added.
Gross value added In economics, gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. "Gross value added is the value of output minus the value of intermediate consumption; it is a measure of ...
= gross value of output – value of intermediate consumption. Value of output = value of the total sales of goods and services plus value of changes in the inventory. The sum of the gross value added in the various economic activities is known as "GDP at factor cost". GDP at factor cost plus indirect taxes less subsidies on products = "GDP at producer price". For measuring output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods: # By multiplying the output of each sector by their respective market price and adding them together # By collecting data on gross sales and inventories from the records of companies and adding them together The value of output of all sectors is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost. Adding indirect tax minus subsidies to GVA (GDP) at factor cost gives the "GVA (GDP) at producer prices".


Income approach

The second way of estimating GDP is to use "the sum of primary incomes distributed by resident producer units". If GDP is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire - wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US "National Income and Expenditure Accounts" divide incomes into five categories: # Wages, salaries, and supplementary labour income # Corporate profits # Interest and miscellaneous investment income # Farmers' incomes # Income from non-farm unincorporated businesses These five income components sum to net domestic income at factor cost. Two adjustments must be made to get GDP: # Indirect taxes minus subsidies are added to get from factor cost to market prices. # Depreciation (or
capital consumption allowance Consumption of fixed capital (CFC) is a term used in business accounts, tax assessments and national accounts for depreciation of fixed assets. CFC is used in preference to "depreciation" to emphasize that fixed capital is used up in the process ...
) is added to get from net domestic product to gross domestic product. Total income can be subdivided according to various schemes, leading to various formulae for GDP measured by the income approach. A common one is: : GDP = + + + * Compensation of employees (COE) measures the total remuneration to employees for work done. It includes wages and salaries, as well as employer contributions to
social security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...
and other such programs. * Gross operating surplus (GOS) is the surplus due to owners of incorporated businesses. Often called profits, although only a subset of total costs are subtracted from
gross output In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly t ...
to calculate GOS. * Gross mixed income (GMI) is the same measure as GOS, but for unincorporated businesses. This often includes most small businesses. The sum of COE, GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It measures the value of GDP at factor (basic) prices. The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP(I) at
factor cost Factor cost or national income by type of income is a measure of national income or output based on the cost of factors of production, instead of market prices. This allows the effect of any subsidy or indirect tax to be removed from the final mea ...
to GDP(I) at final prices. Total factor income is also sometimes expressed as: :''Total factor income'' = ''employee compensation'' + ''corporate profits'' + ''proprietor's income'' + ''rental income'' + ''net interest''


Expenditure approach

The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices. Market goods that are produced are purchased by someone. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring the total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP.


Components of GDP by expenditure

GDP (Y) is the sum of consumption (C), investment (I), government Expenditures (G) and net exports (X – M). :Y = C + I + G + (X − M) Here is a description of each GDP component: * C (consumption) is normally the largest GDP component in the economy, consisting of private expenditures in the economy (
household final consumption expenditure Household final consumption expenditure (POES) is a transaction of the national account's use of income account representing consumer spending. It consists of the expenditure incurred bresidenthouseholds on individual consumption goods and service ...
). These personal expenditures fall under one of the following categories:
durable good In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be consid ...
s, nondurable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses, but not the purchase of new housing. * I (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets. Examples include construction of a new
mine Mine, mines, miners or mining may refer to: Extraction or digging * Miner, a person engaged in mining or digging *Mining, extraction of mineral resources from the ground through a mine Grammar *Mine, a first-person English possessive pronoun ...
, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in investment. In contrast to its colloquial meaning, "investment" in GDP does not mean purchases of
financial products Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies ...
. Buying
financial products Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies ...
is classed as '
saving Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recur ...
', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or companies'
equity shares Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Comm ...
is a swapping of
deed In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring ...
s, a transfer of claims on future production, not directly an expenditure on products; buying an existing building will involve a positive investment by the buyer and a negative investment by the seller, netting to zero overall investment. * G (government spending) is the sum of
government expenditures Public expenditure is spending made by the government of a country on collective needs and wants, such as pension, provisions, security, infrastructure, etc. Until the 19th century, public expenditure was limited as laissez faire philosophies be ...
on
final good A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
s and services. It includes salaries of
public servants The civil service is a collective term for a sector of government composed mainly of career civil servants hired on professional merit rather than appointed or elected, whose institutional tenure typically survives transitions of political leaders ...
, purchases of weapons for the military and any investment expenditure by a government. It does not include any
transfer payment In macroeconomics and finance, a transfer payment (also called a government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. Th ...
s, such as
social security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...
or
unemployment benefits Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployment, unemployed people. In the United States, benefits are fun ...
. Analyses outside the USA will often treat government investment as part of ''investment'' rather than ''government spending''. * X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added. * M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign
supply Supply may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confidenc ...
as domestic. Note that C, I, and G are expenditures on
final good A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
s and services; expenditures on intermediate goods and services do not count. (Intermediate goods and services are those used by businesses to produce other goods and services within the accounting year.) So for example if a
car manufacturer This is a list of notable automobile manufacturers with articles on Wikipedia by country. It includes companies that are in business as well as defunct manufacturers. Only companies that have articles here are included. A Algeria * SNVI ...
buys
auto parts This is a list of auto parts, mostly for vehicles using internal combustion engines which are manufactured components of automobiles: Car body and main parts Body components, including trim Doors Windows Low voltage/auxiliary ele ...
, assembles the car and sells it, only the final car sold is counted towards the GDP. Meanwhile, if a person buys replacement auto parts to install them on their car, those are counted towards the GDP. According to the U.S. Bureau of Economic Analysis, which is responsible for calculating the national accounts in the United States, "In general, the source data for the expenditures components are considered more reliable than those for the income components ee income method, above"


GDP and GNI

GDP can be contrasted with
gross national product The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
(GNP) or, as it is now known,
gross national income The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
(GNI). The difference is that GDP defines its scope according to location, while GNI defines its scope according to ownership. In a global context, world GDP and world GNI are, therefore, equivalent terms. GDP is product produced within a country's borders; GNI is product produced by enterprises owned by a country's citizens. The two would be the same if all of the productive enterprises in a country were owned by its own citizens, and those citizens did not own productive enterprises in any other countries. In practice, however, foreign ownership makes GDP and GNI non-identical. Production within a country's borders, but by an enterprise owned by somebody outside the country, counts as part of its GDP but not its GNI; on the other hand, production by an enterprise located outside the country, but owned by one of its citizens, counts as part of its GNI but not its GDP. For example, the GNI of the
USA The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
is the value of output produced by American-owned firms, regardless of where the firms are located. Similarly, if a country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets. Gross national income (GNI) equals GDP plus income receipts from the rest of the world minus income payments to the rest of the world. In 1991, the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
switched from using GNP to using GDP as its primary measure of production. The relationship between United States GDP and GNP is shown in table 1.7.5 of the ''
National Income and Product Accounts The national income and product accounts (NIPA) are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general econ ...
''. Another example that amplifies the difference among GDP and GNI are the comparison of developed and developing country indicators. The GDP of Japan for 2020 is 5,040,107.75 USD (in a million). Predictably, as a developed country, Japan has a higher GNI of 182,779.46 USD (in million), which is indicative that the production level in the country is higher than that of national production. On the other hand, the case with
Armenia Armenia (), , group=pron officially the Republic of Armenia,, is a landlocked country in the Armenian Highlands of Western Asia.The UNbr>classification of world regions places Armenia in Western Asia; the CIA World Factbook , , and ''Ox ...
is the opposite, with GDP being lower than GNI by 196.12 USD (in million). This demonstrates that countries receive investments and foreign aid from abroad.


International standards

The international standard for measuring GDP is contained in the book ''
System of National Accounts The System of National Accounts (often abbreviated as SNA; formerly the United Nations System of National Accounts or UNSNA) is an international standard system of national accounts, the first international standard being published in 1953. Handbo ...
'' (2008), which was prepared by representatives of the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
,
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
,
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
,
United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and international security, security, develop friendly relations among nations, achieve international cooperation, and be ...
and
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
. The publication is normally referred to as SNA2008 to distinguish it from the previous edition published in 1993 (SNA93) or 1968 (called SNA68) SNA2008 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions.


National measurement

Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required (especially information on expenditure and production by governments).


Nominal GDP and adjustments to GDP

The raw GDP figure as given by the equations above is called the nominal, historical, or current, GDP. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money – for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year. For example, suppose a country's GDP in 1990 was and its GDP in 2000 was . Suppose also that inflation had halved the value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as a base year. The result would be that the GDP in 2000 equals × = , ''in 1990 monetary terms.'' We would see that the country's GDP had realistically increased 50
percent In mathematics, a percentage (from la, per centum, "by a hundred") is a number or ratio expressed as a fraction of 100. It is often denoted using the percent sign, "%", although the abbreviations "pct.", "pct" and sometimes "pc" are also use ...
over that period, not 200 percent, as it might appear from the raw GDP data. The GDP adjusted for changes in money value in this way is called the real, or constant, GDP. The factor used to convert GDP from current to constant values in this way is called the ''
GDP deflator In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the val ...
''. Unlike
consumer price index A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time. Overview A CPI is a statistica ...
, which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods. Constant-GDP figures allow us to calculate a GDP growth rate, which indicates how much a country's production has increased (or decreased, if the growth rate is negative) compared to the previous year. : Real GDP growth rate for year ''n'' = Another thing that it may be desirable to account for is population growth. If a country's GDP doubled over a certain period, but its population tripled, the increase in GDP may not mean that the standard of living increased for the country's residents; the average person in the country is producing less than they were before. ''Per-capita GDP'' is a measure to account for population growth.


Standard of living and GDP: wealth distribution and externalities

GDP per capita is often used as an indicator of living standards. The major advantage of GDP per capita as an indicator of standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP on a quarterly basis, allowing trends to be seen quickly. It is measured widely in that some measure of GDP is available for almost every country in the world, allowing inter-country comparisons. It is measured consistently in that the technical definition of GDP is relatively consistent among countries. GDP does not include several factors that influence the standard of living. In particular, it fails to account for: *
Externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
– Economic growth may entail an increase in negative externalities that are not directly measured in GDP. Increased industrial output might grow GDP, but any pollution is not counted. * Non-market transactions – GDP excludes activities that are not provided through the market, such as household production, bartering of goods and services, and volunteer or unpaid services. * Non-monetary economy – GDP omits economies where no money comes into play at all, resulting in inaccurate or abnormally low GDP figures. For example, in countries with major business transactions occurring informally, portions of local economy are not easily registered.
Bartering In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
may be more prominent than the use of money, even extending to services. * Quality improvements and inclusion of new products – by not fully adjusting for quality improvements and new products, GDP understates true
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
. For instance, although computers today are less expensive and more powerful than computers from the past, GDP treats them as the same products by only accounting for the monetary value. The introduction of new products is also difficult to measure accurately and is not reflected in GDP despite the fact that it may increase the standard of living. For example, even the richest person in 1900 could not purchase standard products, such as antibiotics and cell phones, that an average consumer can buy today, since such modern conveniences did not exist then. * Sustainability of growth – GDP is a measurement of economic historic activity and is not necessarily a projection. *
Wealth distribution The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or heterogeneity in economics, economic heterogeneity. The distribution of wealth differs from the i ...
– GDP does not account for variances in incomes of various demographic groups. See
income inequality metrics Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world ...
for discussion of a variety of inequality-based economic measures. It can be argued that GDP per capita as an indicator standard of living is correlated with these factors, capturing them indirectly. As a result, GDP per capita as a standard of living is a continued usage because most people have a fairly accurate idea of what it is and know it is tough to come up with quantitative measures for such constructs as happiness, quality of life, and well-being.


Limitations and criticisms


Limitations at introduction

Simon Kuznets Simon Smith Kuznets (; rus, Семён Абра́мович Кузне́ц, p=sʲɪˈmʲɵn ɐˈbraməvʲɪtɕ kʊzʲˈnʲɛts; April 30, 1901 – July 8, 1985) was an American economist and statistician who received the 1971 Nobel Memorial Pr ...
, the economist who developed the first comprehensive set of measures of national income, stated in his second report to the U.S. Congress in 1937, in a section titled "Uses and Abuses of National Income Measurements":
The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. ../blockquote>
All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.
In 1962, Kuznets stated:
Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.


Further criticisms

Ever since the development of GDP, multiple observers have pointed out limitations of using GDP as the overarching measure of economic and social progress. For example, many
environmentalists An environmentalist is a person who is concerned with and/or advocates for the protection of the environment. An environmentalist can be considered a supporter of the goals of the environmental movement, "a political and ethical movement that se ...
argue that GDP is a poor measure of social progress because it does not take into account harm to the
environment Environment most often refers to: __NOTOC__ * Natural environment, all living and non-living things occurring naturally * Biophysical environment, the physical and biological factors along with their chemical interactions that affect an organism or ...
. Furthermore, the GDP does not consider human health nor the educational aspect of a population. American politician
Robert F. Kennedy Robert Francis Kennedy (November 20, 1925June 6, 1968), also known by his initials RFK and by the nickname Bobby, was an American lawyer and politician who served as the 64th United States Attorney General from January 1961 to September 1964, ...
criticized the GDP as a measure of ''“everything except that which makes life worthwhile”''. He said that it ''"does not allow for the health of our children, the quality of their education or the joy of their play.”'' Although a high or rising level of GDP is often associated with increased economic and social progress, the opposite sometimes occurs. For example,
Jean Drèze Jean Drèze (born 1959) is a Belgian-born Indian welfare economist, social scientist and activist. He has worked on several developmental issues facing India like social welfare and gender inequality. His co-authors include Nobel laureate in e ...
and
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, econom ...
have pointed out that an increase in GDP or in GDP growth does not necessarily lead to a higher standard of living, particularly in areas such as healthcare and education. Another important area that does not necessarily improve along with GDP is political liberty, which is most notable in China, where GDP growth is strong yet political liberties are heavily restricted. GDP does not account for the distribution of income among the residents of a country, because GDP is merely an aggregate measure. An economy may be highly developed or growing rapidly, but also contain a wide gap between the rich and the poor in a society. These inequalities often occur on the lines of race, ethnicity, gender, religion, or other minority status within countries. This can lead to misleading characterizations of economic well-being if the
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes eco ...
is heavily skewed toward the high end, as the poorer residents will not directly benefit from the overall level of wealth and income generated in their country (their purchasing power can decline, even as the mean
GDP per capita Lists of countries by GDP per capita list the countries in the world by their gross domestic product (GDP) per capita. The lists may be based on nominal or purchasing power parity GDP. Gross national income (GNI) per capita accounts for inflows ...
rises). GDP per capita measures (like aggregate GDP measures) do not account for income distribution (and tend to overstate the average income per capita). For example, South Africa during apartheid ranked high in terms of GDP per capita, but the benefits of this immense wealth and income were not shared equally among its citizens. An inequality which the United Nations
Sustainable Development Goal 10 Sustainable Development Goal 10 (Goal 10 or SDG 10) is about reduced inequality and is one of the 17 Sustainable Development Goals established by the United Nations in 2015. The full title is: "Reduce inequality within and among countries".Unite ...
amongst other global initiatives aims to address. GDP excludes the value of household and other
unpaid work Unpaid labor or unpaid work is defined as labor or work that does not receive any direct remuneration. This is a form of non-market work which can fall into one of two categories: (1) unpaid work that is placed within the production boundary of ...
. Some, including
Martha Nussbaum Martha Craven Nussbaum (; born May 6, 1947) is an American philosopher and the current Ernst Freund Distinguished Service Professor of Law and Ethics at the University of Chicago, where she is jointly appointed in the law school and the philosoph ...
, argue that this value should be included in measuring GDP, as household labor is largely a substitute for goods and services that would otherwise be purchased with money. Even under conservative estimates, the value of unpaid labor in Australia has been calculated to be over 50% of the country's GDP. A later study analyzed this value in other countries, with results ranging from a low of about 15% in Canada (using conservative estimates) to high of nearly 70% in the United Kingdom (using more liberal estimates). For the United States, the value was estimated to be between about 20% on the low end to nearly 50% on the high end, depending on the methodology being used. Because many public policies are shaped by GDP calculations and by the related field of
national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
, public policy might differ if unpaid work were included in total GDP. Some economists have advocated for changes in the way public policies are formed and implemented. The UK's
Natural Capital Committee The Natural Capital Committee (NCC) was an independent body set up in 2012, initially for a three-year period, to report to the UK Government and advise on how to value nature and to ensure England's 'natural wealth' is managed efficiently and su ...
highlighted the shortcomings of GDP in its advice to the UK Government in 2013, pointing out that GDP "focuses on flows, not stocks. As a result, an economy can run down its assets yet, at the same time, record high levels of GDP growth, until a point is reached where the depleted assets act as a check on future growth". They then went on to say that "it is apparent that the recorded GDP growth rate overstates the
sustainable growth Sustainable development is an organizing principle for meeting human development goals while also sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The desir ...
rate. Broader measures of wellbeing and wealth are needed for this and there is a danger that short-term decisions based solely on what is currently measured by national accounts may prove to be costly in the long-term". It has been suggested that countries that have authoritarian governments, such as the People's Republic of
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
, and
Russia Russia (, , ), or the Russian Federation, is a List of transcontinental countries, transcontinental country spanning Eastern Europe and North Asia, Northern Asia. It is the List of countries and dependencies by area, largest country in the ...
, inflate their GDP figures.


Research and development about the relation between GDP and use of GDP and reality

Instances of GDP measures have been considered numbers that are artificial constructs. In 2020 scientists, as part of a
World Scientists' Warning to Humanity The "World Scientists' Warning to Humanity" was a document written in 1992 by Henry W. Kendall and signed by about 1,700 leading scientists. Twenty-five years later, in November 2017, 15,364 scientists signed "World Scientists' Warning to Humanity: ...
-associated series, warned that worldwide growth in
affluence Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
in terms of GDP-metrics has increased
resource use Resource consumption is about the consumption (economics), consumption of non-renewable resource, non-renewable, or less often, renewable resources. Specifically, it may refer to: * water consumption * energy consumption ** electric energy consumpt ...
and pollutant emissions with affluent citizens of the world – in terms of e.g. resource-intensive consumption – being responsible for most negative environmental impacts and central to a transition to safer,
sustainable Specific definitions of sustainability are difficult to agree on and have varied in the literature and over time. The concept of sustainability can be used to guide decisions at the global, national, and individual levels (e.g. sustainable livin ...
conditions. They summarised evidence, presented solution approaches and stated that far-reaching
lifestyle Lifestyle often refers to: * Lifestyle (sociology), the way a person lives * ''Otium'', ancient Roman concept of a lifestyle * Style of life (german: Lebensstil, link=no), dealing with the dynamics of personality Lifestyle may also refer to: Bus ...
changes Changes may refer to: Books * ''Changes'', the 12th novel in Jim Butcher's ''The Dresden Files'' Series * ''Changes'', a novel by Danielle Steel * ''Changes'', a trilogy of novels on which the BBC TV series was based, written by Peter Dickinson ...
need to complement technological advancements and that existing societies, economies and cultures incite consumption expansion and that the structural imperative for
growth Growth may refer to: Biology * Auxology, the study of all aspects of human physical growth * Bacterial growth * Cell growth * Growth hormone, a peptide hormone that stimulates growth * Human development (biology) * Plant growth * Secondary growth ...
in
competitive Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
market economies A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...
inhibits
societal change Social change is the alteration of the social order of a society which may include changes in social institutions, social behaviours or social relations. Definition Social change may not refer to the notion of social progress or sociocult ...
. Text and image were copied from this source, which is available under
Creative Commons Attribution 4.0 International License
.
Sarah Arnold, Senior Economist at the
New Economics Foundation The New Economics Foundation (NEF) is a British think-tank that promotes "social, economic and environmental justice". NEF was founded in 1986 by the leaders of The Other Economic Summit (TOES) with the aim of working for a "new model of wealth ...
(NEF) stated that "GDP includes activities that are detrimental to our
economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
and
society A society is a group of individuals involved in persistent social interaction, or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. Socie ...
in the long term, such as
deforestation Deforestation or forest clearance is the removal of a forest or stand of trees from land that is then converted to non-forest use. Deforestation can involve conversion of forest land to farms, ranches, or urban use. The most concentrated d ...
, strip mining, overfishing and so on". The number of trees that are net lost annually is estimated to be approximately 10 billion. The global average annual deforested land in the 2015–2020 demi-decade was 10 million hectares and the average annual net forest area loss in the 2000–2010 decade 4.7 million hectares, according to the Global Forest Resources Assessment 2020. According to one study, depending on the level of
wealth inequality The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity. The distribution of wealth differs from the income distribution in that ...
, higher GDP-growth can be associated with more deforestation. In 2019 "agriculture and agribusiness" accounted for 24 % of the GDP of Brazil, where a large share of annual net tropical forest loss occurred and is associated with sizable portions of this economic activity domain. The number of
obese Obesity is a medical condition, sometimes considered a disease, in which excess body fat has accumulated to such an extent that it may negatively affect health. People are classified as obese when their body mass index (BMI)—a person's we ...
adults was approximately 600 million (12%) in 2015. In 2013 scientists reported that large
improvements Improvement is the process of a thing moving from one state to a state considered to be better, usually through some action intended to bring about that better state. The concept of improvement is important to governments and businesses, as well a ...
in
health Health, according to the World Health Organization, is "a state of complete physical, mental and social well-being and not merely the absence of disease and infirmity".World Health Organization. (2006)''Constitution of the World Health Organiza ...
only lead to modest long-term increases in GDP per capita. After developing an abstract metric similar to GDP, the
Center for Partnership Studies Riane Tennenhaus Eisler (born 22 July 1931) is an Austrian-born American systems scientist and author who writes about the effect of gender politics historically on society. She is most known for her 1987 book ''The Chalice and the Blade'', in ...
highlighted that GDP "and other metrics that reflect and perpetuate them" may not be useful for facilitating the production of products and provision of services that are useful – or comparatively more useful – to society, and instead may "actually encourage, rather than discourage, destructive activities".
Steve Cohen Steve, Steven or Stephen Cohen may refer to: Sportspeople * Stephan Cohen (born 1971), French pocket billiards player * Steve Cohen (gymnast) (born 1946), American Olympic gymnast *Steve Cohen (judoka) (born 1955), American judoka and Olympian *Ste ...
of the Earth Institute elucidated that while GDP does not distinguish between different activities (or
lifestyles Lifestyle often refers to: * Lifestyle (sociology), the way a person lives * ''Otium'', ancient Roman concept of a lifestyle * Style of life (german: Lebensstil, link=no), dealing with the dynamics of personality Lifestyle may also refer to: Bus ...
), "all consumption behaviors are not created equal and do not have the same impact on
environmental sustainability Specific definitions of sustainability are difficult to agree on and have varied in the literature and over time. The concept of sustainability can be used to guide decisions at the global, national, and individual levels (e.g. sustainable livi ...
".
Johan Rockström Johan Rockström (born 31 December 1965) is a Swedish scientist, internationally recognized for his work on global sustainability issues. He is joint director of the Potsdam Institute for Climate Impact Research (PIK) in Germany, together with e ...
, director of the Potsdam Institute for Climate Impact Research, noted that "it's difficult to see if the current G.D.P.-based
model A model is an informative representation of an object, person or system. The term originally denoted the Plan_(drawing), plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a mea ...
of economic growth can go hand-in-hand with rapid cutting of emissions", which nations have agreed to attempt under the
Paris Agreement The Paris Agreement (french: Accord de Paris), often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change. Adopted in 2015, the agreement covers climate change mitigation, Climate change a ...
in order to mitigate real-world impacts of climate change. Some have pointed out that GDP did not adapt to sociotechnical changes to give a more accurate picture of the modern economy and does not encapsulate the
value Value or values may refer to: Ethics and social * Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them ** Values (Western philosophy) expands the notion of value beyo ...
of new activities such as delivering price-free information and entertainment on
social media Social media are interactive media technologies that facilitate the creation and sharing of information, ideas, interests, and other forms of expression through virtual communities and networks. While challenges to the definition of ''social medi ...
. In 2017
Diane Coyle Diane Coyle (born February 1961) is an economist and a former advisor to the UK Treasury. She was vice-chairman of the BBC Trust, the governing body of the British Broadcasting Corporation, and was a member of the UK Competition Commission fro ...
explained that GDP excludes much unpaid work, writing that "many people contribute free digital
work Work may refer to: * Work (human activity), intentional activity people perform to support themselves, others, or the community ** Manual labour, physical work done by humans ** House work, housework, or homemaking ** Working animal, an animal tr ...
such as writing
open-source software Open-source software (OSS) is computer software that is released under a license in which the copyright holder grants users the rights to use, study, change, and distribute the software and its source code to anyone and for any purpose. Op ...
that can substitute for marketed equivalents, and it clearly has great economic value despite a price of zero", which constitutes a common criticism "of the reliance on GDP as the measure of economic success" especially after the emergence of the
digital economy The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional Brick and mortar, brick-and-mortar economic activities (production, distribution, trade) are being transformed by Interne ...
. Similarly GDP does not value or distinguish for
environmental protection Environmental protection is the practice of protecting the natural environment by individuals, organizations and governments. Its objectives are to conserve natural resources and the existing natural environment and, where possible, to repair dam ...
. A 2020 study found that "poor regions' GDP grows faster by attracting more polluting
production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stati ...
after connection to China's expressway system. GDP may not be a tool capable of recognizing how much
natural capital Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...
agents of the economy are building or protecting.


Proposals to overcome GDP limitations

In response to these and other limitations of using GDP, alternative approaches have emerged. * In the 1980s,
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, econom ...
and
Martha Nussbaum Martha Craven Nussbaum (; born May 6, 1947) is an American philosopher and the current Ernst Freund Distinguished Service Professor of Law and Ethics at the University of Chicago, where she is jointly appointed in the law school and the philosoph ...
developed the
capability approach The capability approach (also referred to as the capabilities approach) is a normative approach to human welfare that concentrates on the actual capability of persons to achieve lives they value rather than solely having a right or freedom to do ...
, which focuses on the functional capabilities enjoyed by people within a country, rather than the aggregate wealth held within a country. These capabilities consist of the functions that a person is able to achieve. * In 1990
Mahbub ul Haq Mahbub ul Haq ( ur, ; ) was a Pakistani economist, international development theorist, and politician who served as the Minister of Finance of Pakistan from 10 April 1985 to 28 January 1986, and again from June to December 1988 as a caretak ...
, a Pakistani Economist at the United Nations, introduced the
Human Development Index The Human Development Index (HDI) is a statistic composite index of life expectancy, education (mean years of schooling completed and expected years of schooling upon entering the education system), and per capita income indicators, whi ...
(HDI). The HDI is a composite index of life expectancy at birth, adult literacy rate and standard of living measured as a logarithmic function of GDP, adjusted to purchasing power parity. * In 1989,
John B. Cobb John Boswell Cobb, Jr. (born 9 February 1925) is an American theologian, philosopher, and environmentalist. Cobb is often regarded as the preeminent scholar in the field of process philosophy and process theology, the school of thought associ ...
and
Herman Daly Herman Edward Daly (July 21, 1938 – October 28, 2022) was an American ecological and Georgist economist and professor at the School of Public Policy of University of Maryland, College Park in the United States, best known for his time as a s ...
introduced Index of Sustainable Economic Welfare (ISEW) by taking into account various other factors such as consumption of nonrenewable resources and degradation of the environment. The new formula deducted from GDP (personal consumption + public non-defensive expenditures - private defensive expenditures + capital formation + services from domestic labour - costs of environmental degradation - depreciation of natural capital) * In 2005,
Med Jones Med Jones (a.k.a. Med Yones) is an American economist. He is the president of International Institute of Management, a U.S. based research organization. His work at the institute focuses on economic, investment, and business strategies. Career T ...
, an American Economist, at the International Institute of Management, introduced the first secular Gross National Happiness Index a.k.a.
Gross National Well-being Gross National Well-being/Wellness (GNW) or Happiness (GNH) a socioeconomic development and measurement framework. The GNW/GNH Index consists of seven dimensions: economic, environmental, physical, mental, work, social, and political. Most wellness ...
framework and Index to complement GDP economics with additional seven dimensions, including environment, education, and government, work, social and health (mental and physical) indicators. The proposal was inspired by the King of Bhutan's
GNH GNH may refer to: * Greenhithe railway station, England * Grey Nuns Hospital (disambiguation) * Gross National Happiness Gross National Happiness (GNH), sometimes called Gross Domestic Happiness (GDH), is a philosophy that guides the government ...
philosophy. * In 2009 the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
released a communication titled ''GDP and beyond: Measuring progress in a changing world'' that identified five actions to improve indicators of progress in ways that make them more responsive to the concerns of its citizens. * In 2009 Professors
Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
,
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, econom ...
, and
Jean-Paul Fitoussi Jean-Paul Fitoussi (19 August 1942 – 15 April 2022) was a French economist and sociologist of Sephardi Jewish descent. Biography Born in La Goulette, French Protectorate of Tunisia, Fitoussi earned his Ph.D. ''cum laude'' in Law and Econ ...
at the
Commission on the Measurement of Economic Performance and Social Progress The Commission on the Measurement of Economic Performance and Social Progress (CMEPSP), generally referred to as the Stiglitz-Sen-Fitoussi Commission after the surnames of its leaders, is a commission of inquiry created by the French Government in 2 ...
(CMEPSP), formed by French President,
Nicolas Sarkozy Nicolas Paul Stéphane Sarközy de Nagy-Bocsa (; ; born 28 January 1955) is a French politician who served as President of France from 2007 to 2012. Born in Paris, he is of Hungarian, Greek Jewish, and French origin. Mayor of Neuilly-sur-Se ...
published a proposal to overcome the limitation of GDP economics to expand the focus to well-being economics with a well-being framework consisting of health, environment, work, physical safety, economic safety, and political freedom. * In 2008, the
Centre for Bhutan Studies The Centre for Bhutan Studies and GNH Research (formerly The Centre for Bhutan Studies) is a research institute located in Thimphu, Bhutan, established in 1999 with the purpose of promoting research and scholarship in Bhutan. The president of the c ...
began publishing the Bhutan Gross National Happiness (GNH) Index, whose contributors to happiness include physical, mental, and spiritual health; time balance; social and community vitality; cultural vitality; education; living standards; good governance; and ecological vitality. * In 2013, the
OECD Better Life Index The OECD Better Life Index, created in May 2011 by the Organisation for Economic Co-operation and Development, is an initiative pioneering the development of economic indicators which better capture multiple dimensions of economic and social progre ...
was published by the OECD. The dimensions of the index included health, economic, workplace, income, jobs, housing, civic engagement, and
life satisfaction Life satisfaction is a measure of a person's well-being, assessed in terms of mood, relationship satisfaction, achieved goals, self-concepts, and self-perceived ability to cope with life. Life satisfaction involves a favorable attitude towards on ...
. * Since 2012, John Helliwell,
Richard Layard Peter Richard Grenville Layard, Baron Layard FBA (born 15 March 1934) is a British labour economist, currently working as programme director of the Centre for Economic Performance at the London School of Economics. Layard was Senior Research ...
and
Jeffrey Sachs Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...
have edited an annual
World Happiness Report The World Happiness Report is a publication that contains articles and rankings of Gross National Happiness, national happiness, based on respondent ratings of their own lives, which the report also correlates with various Quality of life, (qualit ...
which reports a national measure of subjective well-being, derived from a single survey question on satisfaction with life. GDP explains some of the cross-national variation in life satisfaction, but more of it is explained by other, social variables (See 2013 World Happiness Report). * In 2019, Serge Pierre Besanger published a "GDP 3.0" proposal which combines an expanded GNI formula which he calls GNIX, with a
Palma ratio Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world ...
and a set of environmental metrics based on the Daly Rule. * In the beginning of the 21st century the World Economic Forum published a series of analyses and propositions to create economic measurement tools more effective than GDP.


Problems with GDP data


Manipulation of data

A peer-reviewed study published in the ''
Journal of Political Economy The ''Journal of Political Economy'' is a monthly peer-reviewed academic journal published by the University of Chicago Press. Established by James Laurence Laughlin in 1892, it covers both theoretical and empirical economics. In the past, the ...
'' in October 2022 found signs of manipulation of
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
statistics in the majority of countries. According to the study, this mainly applied to countries that were governed semi-authoritarian/authoritarian or did not have a functioning
separation of powers Separation of powers refers to the division of a state's government into branches, each with separate, independent powers and responsibilities, so that the powers of one branch are not in conflict with those of the other branches. The typic ...
. The study took the annual growth in brightness of lights at night, as measured by satellites, and compared it to officially reported economic growth. Authoritarian states had consistently higher reported growth in GDP than their growth in night lights would suggest. An effect that also cannot be explained by different economic structures, sector composition or other factors. Incorrect growth statistics can also falsify indicators such as GDP or GDP per capita.


Lists of countries by their GDP

*
Lists of countries by GDP List of countries by GDP (gross domestic product) may refer to: *List of countries by GDP (nominal), a list using the current exchange rates for national currencies **List of countries by GDP (nominal) per capita *List of countries by GDP (PPP), a ...
*
List of countries by GDP (nominal) Gross domestic product (GDP) is the market value of all final goods and services from a nation in a given year. Countries are sorted by nominal GDP estimates from financial and statistical institutions, which are calculated at market or go ...
, (
per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...
) *
List of continents by GDP This article includes a list of continents of the world sorted by their gross domestic product (GDP), the market value of all final goods and services from a continent in a given year. The GDP dollar estimates presented here are calculated at m ...
*
List of countries by GDP (PPP) GDP (PPP) means gross domestic product based on purchasing power parity. This article includes a list of countries by their forecast estimated GDP (PPP). Countries are sorted by GDP (PPP) forecast estimates from financial and statistical ...
, (
per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...
) *
List of countries by real GDP growth rate This article includes a lists of countries and dependent territories sorted by their real gross domestic product growth rate; the rate of growth of the value of all final goods and services produced within a state in a given year. The statistics ...
, (
per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...
) *
List of countries by GDP sector composition This is a list of countries by gross domestic product (GDP) sector composition. By economic sector Nominal GDP sector composition Nominal GDP sector composition, 2015 (in percentage and in millions of dollars): Real GDP sector composition GD ...
*
List of countries by past and projected GDP (PPP) A ''list'' is any set of items in a row. List or lists may also refer to: People * List (surname) Organizations * List College, an undergraduate division of the Jewish Theological Seminary of America * SC Germania List, German rugby union ...
, (
per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...
), (
nominal Nominal may refer to: Linguistics and grammar * Nominal (linguistics), one of the parts of speech * Nominal, the adjectival form of "noun", as in "nominal agreement" (= "noun agreement") * Nominal sentence, a sentence without a finite verb * Nou ...
), (
per capita ''Per capita'' is a Latin phrase literally meaning "by heads" or "for each head", and idiomatically used to mean "per person". The term is used in a wide variety of social sciences and statistical research contexts, including government statistic ...
)


See also

*
Economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
*
OECD Better Life Index The OECD Better Life Index, created in May 2011 by the Organisation for Economic Co-operation and Development, is an initiative pioneering the development of economic indicators which better capture multiple dimensions of economic and social progre ...
*
Chained volume series A chained volume series is a series of economic data (such as GDP, GNP or similar kinds of data) from successive years, put in real (or constant, i.e. inflation- and deflation-adjusted) terms by computing the production volume for each year in the p ...
*
Circular flow of income The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit ...
*
Economy monetization The Economy monetization is a metric of the national economy, reflecting its saturation with liquid assets. The level of monetization is determined both by the development of the national financial system and by the whole economy. The monetizatio ...
*
GDP density GDP Density is a measure of economic activity by area. It is expressed as GDP per square kilometer and can be calculated by multiplying GDP per capita of an area by the population density of that area. Amongst other uses it demonstrates the effects ...
* Genuine progress indicator *
Gross regional domestic product Gross regional domestic product (GRDP), gross domestic product of region (GDPR), or gross state product (GSP) is a statistic that measures the size of a region's economy. It is the aggregate of gross value added (GVA) of all resident producer unit ...
*
Gross regional product Gross regional product (GRP) is a monetary measure of the market value of all final goods and services produced in a region or subdivision of a country in a period (quarterly or yearly) of time. A metropolitan area's GRP (gross metropolitan prod ...
*
Inventory investment Inventory investment is a component of gross domestic product (GDP). What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they wer ...
*
Modified gross national income Modified gross national income, Modified GNI or GNI* was created by the Central Bank of Ireland in February 2017 as a new way to measure the Irish economy, and Irish indebtedness, due to the increasing distortion that the base erosion and profi ...
*
List of countries by average wage The average wage is a measure of total income after taxes divided by total number of employees employed. In this article, the average wage is adjusted for living expenses "purchasing power parity" (PPP). This is not to be confused with the Disposa ...
*
Disposable household and per capita income Household income is a measure of the combined incomes of all people sharing a particular household or place of residence. It includes every form of income, e.g., salaries and wages, retirement income, near cash government transfers like food stam ...
*
List of economic reports by U.S. government agencies The following reports on economic indicators are reported by United States government agencies: *Business activity **Wholesale Inventories **Industrial Production (Federal Reserve) ***Capacity Utilization ** Regional Manufacturing Surveys (purcha ...
*
Misery index (economics) The misery index is an economic indicator, created by economist Arthur Okun. The index helps determining how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflatio ...
*
National average salary The national average salary (or national average wage) is the mean salary for the working population of a nation. It is calculated by summing all the annual salaries of all persons in work and dividing the total by the number of workers. It is no ...
*
Potential output In economics, potential output (also referred to as "natural gross domestic product") refers to the highest level of real gross domestic product (potential output) that can be sustained over the long term. Actual output happens in real life while p ...
*
Productivism Productivism or growthism is the belief that measurable Productivity (economics), productivity and economic growth, growth are the purpose of human organization (e.g., work), and that "more production is necessarily good". Critiques of product ...
*
Social Progress Index The Social Progress Index (SPI) measures the extent to which countries provide for the social and environmental needs of their citizens. Fifty-four indicators in the areas of basic human needs, foundations of well-being, and opportunity to progre ...


References


Further reading

* Australian Bureau for Statistics
''Australian National Accounts: Concepts, Sources and Methods''
, 2000. Retrieved November 2009. In depth explanations of how GDP and other national accounts items are determined. * *
Joseph E. Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, "Measuring What Matters: Obsession with one financial figure, GDP, has worsened people's health, happiness and the environment, and economists want to replace it", ''
Scientific American ''Scientific American'', informally abbreviated ''SciAm'' or sometimes ''SA'', is an American popular science magazine. Many famous scientists, including Albert Einstein and Nikola Tesla, have contributed articles to it. In print since 1845, it i ...
'', vol. 323, no. 2 (August 2020), pp. 24–31. * United States Department of Commerce, Bureau of Economic Analysis, . Retrieved November 2009. In-depth explanations of how GDP and other national accounts items are determined. * ''The Power of a Single Number: A Political History of GDP'' by Philipp Lepenies * ''The Little Big Number: How GDP Came to Rule the World and What to Do About It'' by Dirk Philipsen


External links

; Global
Australian Bureau of Statistics Manual on GDP measurement







World Development Indicators (WDI)
at Worldbank.org
World GDP Chart (since 1960)
; Data

* ttp://www.historicalstatistics.org/ Historicalstatistics.org: Links to historical statistics on GDP for countries and regions maintained by the Department of Economic History at
Stockholm University Stockholm University ( sv, Stockholms universitet) is a public research university in Stockholm, Sweden, founded as a college in 1878, with university status since 1960. With over 33,000 students at four different faculties: law, humanities, so ...
. * Quandl
GDP by country
- downloadable in CSV, Excel, JSON or XML
Historical U.S. GDP (yearly data)
1790–present, maintained by Samuel H. Williamson and Lawrence H. Officer, both professors of economics at the
University of Illinois at Chicago The University of Illinois Chicago (UIC) is a Public university, public research university in Chicago, Illinois. Its campus is in the Near West Side, Chicago, Near West Side community area, adjacent to the Chicago Loop. The second campus esta ...
.
Google – public data
GDP and Personal Income of the U.S. (annual): Nominal Gross Domestic Product

of the Groningen Growth and Development Centre at the
University of Groningen The University of Groningen (abbreviated as UG; nl, Rijksuniversiteit Groningen, abbreviated as RUG) is a Public university#Continental Europe, public research university of more than 30,000 students in the city of Groningen (city), Groningen in ...
, the Netherlands. This project continues and extends the work of
Angus Maddison Angus Maddison (6 December 1926 – 24 April 2010) was a distinguished British economist specialising in quantitative macro economic history, including the measurement and analysis of economic growth and development. Maddison lectured at sev ...
in collating all the available, credible data estimating GDP for countries around the world. This includes data for some countries for over 2,000 years back to 1 CE and for essentially all countries since 1950. ; Articles and books
Gross Domestic Product: An Economy’s All
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
.
Stiglitz JE, Sen A, Fitoussi J-P. Mismeasuring our Lives: Why GDP Doesn't Add Up, New Press, New York, 2010



Whether output and CPI inflation are mismeasured
by
Nouriel Roubini Nouriel Roubini (born March 9 1958) is a Turkish-born Iranian-American economist. He is Professor Emeritus (2021–present) and was Professor of Economics (1995–2021) at the Stern School of Business, New York University, and also chairman of Ro ...
and