07 May 2013

More Attempts to Measure Beyond GDP

Gross domestic product (GDP) is the magical term often used to described the economic growth of a country.

Governments, experts and news reports point to it as a measure of progress. In development, a field often dominated by economists, GDP is all but an obligatory part of the discussion when it comes to country level progress.

The problem is many other experts say GDP is actually not very good at measuring either progress or development.

Nobel Prize winning economist Joseph Stiglitz is among the most vocal opponents of overusing GDP as a yardstick for development. He says that it does not capture equally important issues like poverty levels and inequality. The overall economies of countries can hum along for years showing solid GDP growth without meaningful change for the majority of its citizens. One need not look further than the US to see how middle class incomes have held steady over the past few decades, despite overall GDP growth and wealth accumulation at the top.

The most notable index that tries to look past GDP is the UN’s Human Development Index (HDI). Produced each year, the HDI compares countries on a series of indicators. However, when the HDI rankings are compared against GDP, it turns out that there is a very strong correlation between development and GDP, found economist Justin Wolfers (see chart below).
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