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Gross domestic product (GDP) is a monetary
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 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 often revised before being considered a reliable indicator. GDP (nominal) per capita does not, however, reflect differences in the cost of living 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 (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 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 ...
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 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 often argue that GDP measures were never intended to measure progress, and leave out key other externalities, such as resource extraction, environmental impact 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 and well being.


History

William Petty 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 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 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 in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (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 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 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 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(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, 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 = 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 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 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). 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', 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 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 goods and services. It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. 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 as domestic. Note that C, I, and G are expenditures on final goods 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, 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 (GNP) or, as it is now known, gross national income (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 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''. 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 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, European Union,
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 and World Bank. 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''. 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 – 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 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 – GDP does not account for variances in incomes of various demographic groups. See income inequality metrics 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 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 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 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 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. 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, 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 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 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, 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-associated series, warned that worldwide growth in affluence 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 changes 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 market economies inhibits societal change. 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 (NEF) stated that "GDP includes activities that are detrimental to our economy and society in the long term, such as deforestation, 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, 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 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 only lead to modest long-term increases in GDP per capita. After developing an abstract metric similar to GDP, the Center for Partnership Studies 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".
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 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. In 2017 Diane Coyle explained that GDP excludes much unpaid work, writing that "many people contribute free digital work such as writing open-source software 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. A 2020 study found that "poor regions' GDP grows faster by attracting more polluting production after connection to China's expressway system. GDP may not be a tool capable of recognizing how much natural capital 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 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, 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, a Pakistani Economist at the United Nations, introduced the Human Development Index (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 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 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, and Jean-Paul Fitoussi 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 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 was published by the OECD. The dimensions of the index included health, economic, workplace, income, jobs, housing, civic engagement, and life satisfaction. * Since 2012, John Helliwell, Richard Layard and Jeffrey Sachs have edited an annual World Happiness Report 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. 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 (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) *
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) * List of countries by real GDP growth rate, ( per capita) * List of countries by GDP sector composition * List of countries by past and projected GDP (PPP), ( per capita), (
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)


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 * Chained volume series *
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 product * Inventory investment * Modified gross national income * List of countries by average wage * Disposable household and per capita income * List of economic reports by U.S. government agencies * Misery index (economics) * National average salary * Potential output * Productivism * Social Progress Index


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, "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'', 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.
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 Netherlands. This project continues and extends the work of Angus Maddison 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.
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 and