POST TIME: 7 March, 2018 00:00 00 AM
Is GDP growth a true indicator of economic development?
More production as a result of higher economic growth induces more consumption which at one point exceeds the necessary limit and causes wastage
Md Nadim Uddin

Is GDP growth a true indicator of 
economic development?

Economic growth (percentage change of GDP in current year given that any base year) is always taken into consideration as an outcome. Economic growth means more output, employment, income and in consequence is deemed to be more well-being for the people until that growth could cause inadequate impact on well-being for the people. In other words growth is necessary but not sufficient indicator for people’s welfare as well as well-being.

There can hardly be any doubt that, given other things, an expansion of opulence must make a contribution to the living condition of the people. It is, for this reason, in pre- eighties of twentieth century, economist regarded the expansion of GDP (Gross domestic product) as a key indicator of economic development. It had been thought that development must depend on the nature of merely economic growth. But in late-eighties, economists overlooked that, there have been mismatch between economic growth and economic development. Because, from the empirical analysis of many countries, it was discovered that, disparity was obscured even though highly economic growth was sustaining in that period in terms of education, health, gender equality, standard of living, life expectancy poverty alleviation. Therefore, economists have felt the necessity to emphasise on broad issue of poverty reduction, misery and well-being and from the fulfilment of basic needs and enhancing the quality of life. Thus development economics starts cutting a vital role in today's economic world.

Has economic growth changed the standard of living of people significantly? In particular, is the effectiveness of growth enough for poverty reduction, health facility, education and roughly what improves quality of people’s life?  

Unfortunately, the answer to each of these questions is “no”. However one needs to look at why economic growth is inaccurate to measure countries’ development. Here some of the oversight is discussed about economic growth that is currently identified as loopholes for inadequate explanation of economic development.  

GDP is concerned with only the market value of final goods and services during a certain period of time produced by an economy. Insofar, percentage change in GDP is merely considered as a component of economic growth even though distribution of income among the population is unequal.

In spite of having increased aggregate view of income, the poorest groups are likely going down in terms of their own real incomes. Undoubtedly, some of the case in which standard of living may not be increased or fall far behind might be expected on the basis of economic growth.

GDP includes only marketable goods in which transactions of marketable goods are meant for the well-being and those goods for which market prices can be easily traced. But GDP leaves out environmental deterioration and global warming. The logic is simple more economic growth consumes more natural resources that hinder environmental protection, greater economic growth demands more production that emits more carbon and eventually exacerbate global warming. Likewise, more production as a result of higher economic growth induces more consumption which at one point exceeds the limit of necessity and causes wastage. Thus, in simple logic, the urge of more economic growth ends with further deterioration of the environment. Nevertheless the importance of what is left out has become increasingly recognised. Since our growth and well-being is sufficiently related to contribution of environment and natural resources.

In case of some commodity even when market do exist, the valuation of commodities in the GDP will reflect on the biases that the market may have. Likewise, health sector in which supplier induces demand to take the service of patients. But supplier is also able to deal with different relative price in different people of the country based on their capabilities of bearing health cost. As a result, market creates biasness among the people in getting same commodities. The extensive connection of that range of issues with the concept of development is obvious enough so that the government would interfere on those commodities in which the relative price of this commodity remain non-volatile.      

One crucial drawback in GDP measurement is time dimensional method. The real income enjoyed by a person in a given year reflects at best the extent of well-being enjoyed by that person at that period of time. Likewise, consumption of yesterday is not applicable for today. But the issue has to be considered including interdependences over time. One should get concerned about persistence of his/her real income in order to smooth out consumption over entire lives. Finally, it must be noted that GDP is, in fact, a measure of the amount of the means of well-being that people have, and it does not tell us what people involved are succeeding in getting out of these means. GDP is concerned with the importance of income but where you are spending your income is more important in development while GDP emphasises so little.

Ultimately the assessment of development achieved cannot be achieved by measuring the growth of GDP only. The assessment of development has to go well out of GDP information.

The writer is a freelancer