How Can We Measure the Economic Growth of a Country?

Topics: Economic growth, Economics, Economy Pages: 4 (1183 words) Published: September 18, 2013
How can we measure the economic growth of a country?

Experts have proposed many techniques to assess the economic progress of a country. One of these techniques is to calculate the sum of all the goods and services produced in the country which is known as gross domestic product (GDP). The indicator was created in the wake of great depression in 1930s and still is used to measure individual countries’ economic performance. But now most of the economists claim that GDP alone cannot reflect the economic performance of a society because it has many flaws and does not acceptably measures the household productions, voluntary work, defensive and remedial spending and cash for clunkers.

To begin with GDP does not account for the household productions which have sizable effect on the economy of a nation. Unpaid work for instance, causes fall in GDP as there is no value addition. For example, if a person cooks food for his or her family then it causes fall of GDP but if the family hires a chef then GDP boosts up. Let’s take the example of drying clothes in sunshine. If you let the sun dry your clothes, the service is free and doesn't show up in our domestic product but if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable -- and give GDP a bit of a bump. This seems illogical that if a person reduces his or her consumption then it will cause GDP to drop, eventually resulting into reduced welfare of the nation. According to various studies carried out in France, domestic production could represent as much as 75% of standard GDP. If GDP does not accurately responds to domestic production then how it can be considered a good measure for the welfare of a nation?

Moreover, GDP does not correctly respond to voluntary work and public administration resulting into imperfect measurement of the welfare of a nation. A bicycle repaired by a friend makes GDP fall if the work used to be done by a...
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