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Gross domestic product (GDP) is a monetary measure 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 cer ...
and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards 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 (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 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 inc ...
often argue that GDP measures were never intended to measure progress, and leave out key other externalities, 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 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 Human evoluti ...
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 s ...
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 for a 1934
U.S. Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washin ...
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.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 (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 where ideas from Kuznets were embedded into institutions. 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 fin ...
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 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 Europea ...
, 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 o ...
= 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) 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 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 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 bresident households on individual consumption goods and servi ...
). These personal expenditures fall under one of the following categories: durable goods, 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, 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. Buying financial products 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 deeds, 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 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 or
unemployment benefits Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a comp ...
. 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 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 e ...
, 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 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 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 territori ...
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 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'' (2008), which was prepared by representatives of the International Monetary Fund,
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 de ...
, Organisation for Economic Co-operation and Development,
United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmoniz ...
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 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 va ...
''. Unlike consumer price index, 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 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 disti ...
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. 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 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, 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. 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 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 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 ec ...
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 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 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, 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 desi ...
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, 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 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 ...
in terms of GDP-metrics has increased resource use 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 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: Bu ...
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 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 sociocul ...
. 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 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 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 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 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'', i ...
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 of the Earth Institute elucidated that while GDP does not distinguish between different activities (or lifestyles), "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 livin ...
". Johan Rockström, 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 plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure. Models c ...
of economic growth can go hand-in-hand with rapid cutting of emissions", which nations have agreed to attempt under the Paris Agreement 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 of new activities such as delivering price-free information and entertainment on social media. 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 fr ...
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 t ...
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. 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 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 and Martha Nussbaum 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 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 careta ...
, 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 and Herman Daly 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, 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 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 de ...
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, Amartya Sen, 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 (CMEPSP), formed by French President, Nicolas Sarkozy 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 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 one ...
. * Since 2012, John Helliwell, Richard Layard 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 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 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'' in October 2022 found signs of manipulation of economic growth 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 (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), (
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 * List of countries by GDP (PPP), (
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 *
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), (
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 *
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 ...
* Circular flow of income * Economy monetization * GDP density * 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 un ...
*
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 prof ...
*
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 averag ...
*
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 stamp ...
*
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 not ...
*
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 ...
*
Productivism Productivism or growthism is the belief that measurable productivity and growth are the purpose of human organization (e.g., work), and that "more production is necessarily good". Critiques of productivism center primarily on the limits to g ...
* 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 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 ...
, "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. * 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 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.
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 David Backus, in Lectures in Macroeconomics * Rodney Edvinsson,
Clifford Cobb, Ted Halstead and Jonathan Rowe. "If the GDP is up, why is America down?" The Atlantic Monthly, vol. 276, no. 4, October 1995, pages 59–78
* Jerorn C.J.M. van den Bergh,
Abolishing GDP


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