New Age History and Economics

The Day We See The Truth And Cease To Speak it, Is The Day We Begin To Die. MLK Jr.

Saturday, February 14, 2015

Is GDP a good criterion of economic development?


Is GDP a good criterion of economic development? 

A country with good economic development would ordinarily mean a country where all its citizens have all luxuries of life. Such a country would necessarily have low economic activity since citizens of such country have no need to purchase more goods as they already have most of what they want. That means production in such countries would also be low leading to lower GDP. Primarily higher GDP means people in these countries are still in need of goods, comforts and luxuries of life and such a country does not have a level of economic development where they are content and happy. 

A country with highest GDP will mean a developing economy and not economically developed. There would be an exception in case of countries having huge trade surplus that is positive balance of payments for example Germany and Saudi Arabia etc.

What is GDP?
The gross domestic product (GDP) or gross domestic income (GDI) basically measures a country's economic output. It is the market value of all final goods and services made within the borders of a country in a year. It is often wrongly correlated with the standard of living. GDP is determined by the product / expenditure approach i.e. sum total of all output in economy of every enterprise.  Since the product is bought by somebody it is sum total of all expenses.

Example: the expenditure method:

GDP = private consumption + gross investment + government spending + (exports − imports), or

GDP = C + I + G + (Ex – Im)


In the name "Gross Domestic Product,"

"Gross" means production regardless of the various uses to which that production can be put.

"Domestic" means that GDP measures production that takes place within the country's borders. In the expenditure-method equation given above, the exports-minus-imports term is necessary in order to null out expenditures on things not produced in the country (imports) and add in things produced but not sold in the country (exports).
“Product” means sum total of goods and services produced in country.

Gross domestic product comes under the heading of national accounts, which is a subject in macroeconomics. Economic measurement is called econometrics. 

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