Gross domestic product - Wikipedia

Gross domestic product - Wikipedia
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Total market value of goods and services produced within a country
"GDP" redirects here. For other uses, see
GDP (disambiguation)
GDP WorldBank
GDP per capita (WorldBank)
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Gross domestic product
GDP
) is a
monetary
measure
of the total
market value
of all of the
final goods
and services which are produced and rendered during a specific period of time (usually a year) by a
country
or countries.
GDP is often used to measure the economic activity of a country or region.
The major components of GDP are consumption, government spending, net exports (exports minus imports), and investment. Changing any of these factors can increase the size of the economy. For example, population growth through mass immigration can raise consumption and demand for public services, thereby contributing to GDP growth. However, GDP is not a measure of overall
standard of living
or well-being, as it does not account for how income is distributed among the population. A country may rank high in GDP but still experience
jobless growth
depending on its planned economic structure and strategies. Dividing total GDP by the population gives an idealized rough measure of
GDP per capita
Several national and international economic organizations, such as the
OECD
and the
International Monetary Fund
, maintain their own definitions of GDP.
GDP is often used as a metric for
international comparisons
as well as a
broad measure of economic progress
. It serves as a statistical indicator of national development and progress. Total GDP can also be broken down into the contribution of each industry or sector of the economy.
Nominal GDP is useful when comparing national economies on the international market using current
exchange rate
To compare economies over time,
inflation
can be adjusted by comparing
real instead of nominal values
. For cross-country comparisons, GDP figures are often adjusted for differences in the
cost of living
using
purchasing power parity
(PPP).
GDP per capita at purchasing power parity
can be useful for comparing
living standards
between nations.
GDP has been criticized for leaving out key
externalities
, such as
resource extraction
clarification needed
environmental impact
and
unpaid domestic work
10
Alternative economic indicators such as
doughnut economics
use other measures, such as the
Human Development Index
or
Better Life Index
, as better approaches to measuring the effect of the economy on
human development
and
well-being
History
edit
U.S.
YoY
Quarterly gross domestic product growth rate
Sir
William Petty
came up with a concept of GDP, to calculate the
tax burden
, and argue landlords were unfairly taxed during
warfare between the Dutch and the English
between 1652 and 1674.
11
Charles Davenant
developed the method further in 1695.
12
The modern concept of GDP was first developed by
Simon Kuznets
for a 1934
U.S. Congress
report, where he warned against its use as a measure of welfare (see below under
limitations and criticisms
).
13
After the
Bretton Woods Conference
in 1944, GDP became the main tool for measuring a country's economy.
14
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.
15
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
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."
16
China
officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system.
17
Determining gross domestic product (GDP)
edit
An infographic explaining how GDP is calculated in the UK
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 products 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.
18
Production approach
edit
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
, 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
= gross value of output – value of intermediate consumption.
Value of output = value of the total sales of goods and services plus the 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 the 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
edit
U.S 2015 GDP computed on the income basis
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 Product Accounts" divide incomes into five categories:
Wages, salaries, and supplementary labor income
Corporate profits
Interest and miscellaneous investment income
Income earned by sole proprietors and from the Housing subsector (net of expenses)
Net income from transfer payments from businesses
These five income components sum to net domestic income at factor cost.
Two adjustments must be made to get GDP:
Taxes on production and imports 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:
citation needed
GDP
Compensation of employees
COE
gross operating surplus
GOS
gross mixed income
GMI
taxes less subsidies on production and imports
P&M
P&M
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
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
19
Expenditure approach
edit
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
edit
U.S. GDP computed on the expenditure basis
GDP (Y)
is the sum of
consumption (C)
investment (I)
government expenditures (G)
and
net exports (X − M)
(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
). 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 the construction of a new
mine
, the purchase of software, or the purchase of machinery and equipment for a factory. Spending by households (not the government) on new houses is also included in investment. In contrast to its colloquial meaning, "investment" in GDP does not mean purchases related to financial investments. Buying
financial products
is classed as '
saving
', as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to build a plant, purchase 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
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 goods
and services. It includes salaries of
public servants
, purchases of weapons for the military and any investment expenditure by a government. It does not include any
transfer payments
, such as
social security
or
unemployment benefits
. Analyses outside the US 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
, and
, and must be deducted to avoid counting foreign
supply
as domestic.
, and
are expenditures on
final goods
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.
20
) So for example if a
car manufacturer
buys
auto parts
, 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 [see income method, above]."
21
Encyclopedia Britannica records an alternate way of measuring exports minus imports: notating it as the single variable NX.
22
Nominal GDP and real GDP
edit
The raw GDP figure given by the equations above is called the nominal, historical, or current GDP. When comparing GDP figures from one year to another, compensating for changes in the value of money—for the effects of inflation or deflation—is desirable. To make it more meaningful for year-to-year comparisons, a nominal GDP 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
$100 million
and its GDP in 2000 was
$300 million
. 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
$300 million
$150 million
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 GDP
The factor used to convert GDP from current to constant values in this way is called the
GDP deflator
. 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.
23
National measurement
edit
Main article:
National agencies responsible for GDP 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).
International standards
edit
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
Organisation for Economic Co-operation and Development
United Nations
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)
24
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.
Problems with GDP data
edit
See also:
Economic 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.
25
26
This manipulation was greatest in countries that were semi-authoritarian/authoritarian, or did not have effective
separation of powers
. The study took the annual growth in the brightness of lights at night, as measured by satellites, and compared it to officially reported economic growth. Authoritarian states consistently reported higher growth in GDP than the growth in night lights would suggest, an effect that could not be explained by economic structures, sector composition or other factors.
25
Corporate havens
can also have a
distorted GDP
Lists of countries by GDP
edit
List of continents by GDP
List of countries by GDP (nominal)
List of countries by GDP (PPP)
List of countries by GDP sector composition
List of countries by largest historical GDP
Economic growth
edit
Further information:
Economic growth
and
Productivity-improving technologies
GDP per capita growth
in % (2024)
27
Below -5
-5 to -4
-4 to -3
-3 to -2
-2 to -1
-1 to 0
0 to 1
1 to 2
2 to 3
Above 3
No data
Real GDP can be used to calculate the 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, typically expressed as
percentage change
. The economic growth can be expressed as:
List of countries by real GDP growth rate
List of countries by past and projected GDP (nominal)
PPP
List of countries by real GDP per capita growth
List of countries by GNI per capita growth
Relation to gross national income
edit
GDP can be contrasted with the
gross national income
(GNI) also known as gross national product (GNP). 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 a 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
US
is the value of output produced by American-owned firms, regardless of where the firms are located.
Gross national income (GNI) equals GDP plus income receipts from the rest of the world minus income payments to the rest of the world.
28
In 1991, the
United States
switched from using GNP to using GDP as its primary measure of production.
29
The relationship between United States GDP and GNP is shown in table 1.7.5 of the
National Income and Product Accounts
30
Other examples that amplify differences between GDP and GNI can be found by comparing indicators of developed and developing countries. The GDP of Japan for 2020 was 5.05559 trillion.
31
Predictably, as a developed country, Japan has a higher GNI of 5.16915 trillion for the same year,
32
an increase of 113.560 million. This is indicative of the production level in the country being higher than that of national production. On the other hand, the case with
Armenia
is the opposite with its GNI in 2023 being lower than its GDP by 3.85 billion. This shows countries that receive investments and foreign aid from abroad.
33
34
Limitations and criticisms
edit
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.
35
36
Increased industrial output might grow GDP, but any pollution is not counted.
37
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
may be more prominent than the use of money, even extending to services.
36
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 their monetary value. The introduction of new products is also difficult to measure accurately and is not reflected in GDP although 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.
Broken window fallacy
- The Broken window fallacy is an economic phenomenon stating that GDP will treat money spent on repairing damages even though there is not a net benefit to society.
38
In other words GDP does not account for the fact that there was destruction in the first place. For example if there is a natural disaster and the government spends money on repairing housing, the cost of repairing housing will be included in the government spending portion on GDP even though people might have been equally well off if there was not government spending and a natural disaster.
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":
13
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. [...]
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:
39
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.
GDP as initially defined includes spending on goods and services that would shrink if underlying problems were solved or reduced - for example, medical care, crime-fighting, and the military. During World War II, Kuznets came to argue that military spending should be excluded during peacetime. This idea did not become popular; these activities are tracked because they fit into macroeconomic models (e.g. military spending uses up capital and labor).
40
Ever since the development of GDP, multiple observers have pointed out limitations of using GDP as the overarching measure of economic and social progress. Furthermore, the GDP does not consider human health nor the educational aspect of a population.
41
Instances of GDP measures have been considered numbers that are artificial constructs.
42
American politician
Robert F. Kennedy
43
criticized GDP (or GNI), listing many examples of bad things it does count and good things it does not count:
Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
44
Deficit spending
edit
Deficit spending
increases GDP in case of positive
fiscal multipliers
45
GDP as a metric can incentivize politicians to
overspend
46
Counterfactual GDP under a
balanced budget
scenario can be estimated.
47
If a country becomes increasingly in debt, and spends large amounts of income on debt
interest expense
, will be reflected in a decreased GNI
citation needed
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.
Unpaid work
edit
GDP excludes the value of household and other
unpaid work
. 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.
48
Even under conservative estimates, the value of unpaid labor in Australia has been calculated to be over 50% of the country's GDP.
49
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.
50
Because many public policies are shaped by GDP calculations and by the related field of
national accounts
51
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.
52
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
53
54
In 2017
Diane Coyle
explained that GDP excludes much unpaid work, writing that "many people contribute free digital
work
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
55
A 2025 study in the
American Economic Journal
devised a new GDP measurement (GDP-B) that accounts for the welfare value of new goods and free goods.
54
In 2019, Erik Brynjolfsson and Avinash Collis argued that GDP does not reflect the growing value of many digital goods because they have zero price.
56
Along with several coauthors, they proposed an alternative approach,
GDP-B
, which is based on measuring the
benefits
of goods and services, rather than their price or cost.
57
Health
edit
In 2013 scientists reported that large
improvements
in
health
only lead to modest long-term increases in GDP per capita.
58
After developing an abstract metric similar to GDP, the
Center for Partnership Studies
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".
59
60
The number of
obese
adults was approximately 600 million (12%) in 2015.
61
non sequitur
Environment
edit
See also:
Eco-economic decoupling
Eco-economic decoupling between GDP growth and
greenhouse gas emissions
decrease
Many
environmentalists
argue that GDP is a poor measure of social progress because it does not take into account harm to the
environment
62
63
In the language of economics, everything comes down to its monetary value.
64
In essence, GDP rewards behaviors that are detrimental to the environment.
64
GDP also does not capture certain phenomena impacting citizens' well-being.
65
For example, traffic jams could cause GDP to increase as there is a higher consumption of gasoline, however, GDP fails to consider citizens' well-being in terms of the quality of air due to air pollution from the traffic jams.
66
Various alternatives have been developed(see below).
A 2020 study found that "poor regions' GDP grows faster by attracting more polluting
production
after connection to China's expressway system.
67
GDP may not be a tool capable of recognizing how much
natural capital
agents of the economy are building or protecting.
68
In 2020 scientists, as part of a
World Scientists' Warning to Humanity
-associated series, warned that worldwide growth in
affluence
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
changes
need to
complement technological advancements
and that existing societies, economies and cultures
incite
consumption expansion
and that the
structural imperative
for
growth
in
competitive
market economies
inhibits
societal change
69
70
71
Sarah Arnold, Senior Economist at the
New Economics Foundation
(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".
72
The number of trees that are net lost annually is estimated to be approximately 10 billion.
73
74
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
75
According to one study, depending on the level of
wealth inequality
, higher GDP-growth can be associated with more deforestation.
76
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
77
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
".
78
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
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.
79
In 1989,
John B. Cobb
and
Herman Daly
introduced
Index of Sustainable Economic Welfare
(ISEW) by taking into account other factors such as consumption of nonrenewable resources and degradation of the environment. ISEW is roughly defined as: 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.
80
81
82
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.
83
The UK's
Natural Capital Committee
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
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".
citation needed
China launched the
Gross Ecosystem Product (GEP)
in 2020. It measures the contribution of ecosystems to the economy, including by regulating climate. It spread widely across the country. The first province to issue local rules about GEP was
Zhejiang
, and a year later it has already decided the fate of a project in the
Deqing
region. For example, the GEP of Chengtian Radon Spring Nature Reserve has been calculated as US$43 million.
84
GDP per capita
edit
Countries by GDP (PPP) per capita
in 2024
> $60,000
$50,000–$60,000
$40,000–$50,000
$30,000–$40,000
$20,000–$30,000
$10,000–$20,000
$5,000–$10,000
$2,500–$5,000
$1,000–$2,500
< $1,000
No data
GDP changes with
population change
. GDP adjusted for population is called
Per-capita GDP
or
GDP per person
. This measures the average production of a person in the country. The major advantage of GDP per capita as an indicator of the standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP every quarter, 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.
It can be argued that GDP per capita is an indicator of standard of living.
85
86
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.
85
From the perspective of environmental, social and governance (ESG) measures, GDP per capita trends can be influenced by factors such as gender parity and elements of regulatory quality. The change in number of MSMEs (Micro, Small, and Medium Enterprises) in the Philippines from 2008 through 2021 would be an example of elements such as the per capita gross domestic product and unemployment rate having significant effect on a developing country with mixed economy.
87
Lists of countries by GDP per capita
edit
List of countries by GDP (nominal) per capita
List of countries by GDP (PPP) per capita
List of countries by past and projected GDP (nominal) per capita
PPP
Income distribution
edit
GDP does not account for
income distribution
. This can lead to misleading characterizations of economic well-being if the income distribution 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 income might 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.
88
The United Nations has aimed in its
Sustainable Development Goals
, amongst other global initiatives, to address wealth inequality.
89
See
income inequality metrics
for discussion of a variety of inequality-based economic measures.
36
A representative measure of the living standard is the
median income
since it represents the
median voter
90
The median income growth was found diverging from the GDP per capita growth in some countries.
91
Standard of living
edit
Main article:
Standard of living
Although a high or rising level of GDP per capita 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.
92
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.
93
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.
94
Capabilities
edit
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 GDP within a country. These capabilities consist of the functions that a person is able to achieve.
95
In 1990,
Mahbub ul Haq
, 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 2009 Professors
Joseph Stiglitz
Amartya Sen
, and
Jean-Paul Fitoussi
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. This has been adopted in a number of countries as a
wellbeing economy
policy.
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.
96
In 2013, the
OECD Better Life Index
was published by the OECD. The dimensions of the index included health, economic, workplace, income, jobs, housing, civic engagement, and
life satisfaction
Since 2012, John Helliwell,
Richard Layard
and
Jeffrey Sachs
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.
Sustainability of growth
edit
In the second decade of the 21st century the
United Nations
gave the task of creating a measurement of progress that takes "human wellbeing, sustainability and equity" into account to a group co-chaired by
Kaushik Basu
and
Nora Lustig
. In 2025 it published a report which argued that recent global shocks make the need for transformation more urgent. In January 2026, the UN held a conference named "Beyond GDP" attended by major economists. In February 2026,
Antonio Guterres
said: "We must place true value on the environment and go beyond gross domestic product as a measure of human progress and wellbeing." The initiative followed a debate about
sustainable
economic structures between
green growth
advocates, green
Keynesians
and advocates of
doughnut economy
Wellbeing economy
steady-state economics
degrowth
, and according to a recent survey, 73% of around 800 climate policy researchers support post-growth. According to
Jason Hickel
this initiative will not be enough, because: "A deeper system change is required. Specifically, we need to democratise control over production, which can enable us to change what we produce and for whom. "The dominance of GDP is not an accident, it occurs because GDP measures what is valuable to capital. It is the structure of capitalism that ultimately must be overcome."
97
See also
edit
Chained volume series
Circular flow of income
Composite Index of National Capability
Cost-of-living crisis
Decoupling of wages from productivity
Disposable household and per capita income
Economy monetization
GDP density
Gross regional domestic product
Growth imperative
Impact evaluation
Inventory investment
List of countries by average wage
List of economic reports by U.S. government agencies
Misery index (economics)
Median income
Modified gross national income
National average salary
Per capita income
Potential output
Productivism
Social Progress Index
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Further reading
edit
Australian Bureau for Statistics,
Australian National Accounts: Concepts, Sources and Methods
Archived
2008-08-17 at the
Wayback Machine
), 2000. Retrieved November 2009. In depth explanations of how GDP and other national account items are determined.
Coyle, Diane
(2014).
GDP: A Brief but Affectionate History
. Princeton, NJ: Princeton University Press.
ISBN
978-0-691-15679-8
Jerven, Morten (2013).
Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It.
Cornell University Press.
Lepenies, Philipp.
The Power of a Single Number: A Political History of GDP
Philipsen, Dirk.
The Little Big Number: How GDP Came to Rule the World and What to Do About It
Joseph E. Stiglitz
, "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.
Susskind, Daniel (2024).
Growth: A History and a Reckoning
. Belknap Press: An Imprint of Harvard University Press.
ISBN
978-0674294493
{{
cite book
}}
: CS1 maint: publisher location (
link
Concepts and Methods of the United States National Income and Product Accounts
(PDF)
. United States Department of Commerce, Bureau of Economic Analysis. Archived from
the original
(PDF)
on 8 November 2017
. Retrieved
9 March
2018
In-depth explanations of how GDP and other national account items are determined.
External links
edit
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GDP by Country
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Data
Bureau of Economic Analysis: Official United States GDP data
Historicalstatistics.org: Links to historical statistics on GDP for countries and regions
, maintained by the Department of Economic History at
Stockholm University
Historical U.S. GDP (yearly data)
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The Maddison Project
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Articles and books
Library resources
about
Gross domestic product
Resources in your library
Callen, Tim.
"Gross Domestic Product: An Economy's All"
International Monetary Fund
Stiglitz, JE; Sen, A; Fitoussi, J-P (2010).
"Mismeasuring our Lives: Why GDP Doesn't Add Up"
. New Press. Archived from
the original
on May 15, 2013.
"What's wrong with the GDP?"
, The
Genuine progress indicator
: Summary of Data and Methodology, Redefining Progress C1995
Whether output and CPI inflation are mismeasured
, by
Nouriel Roubini
and
David Backus
, in Lectures in Macroeconomics
Rodney Edvinsson,
Edvinsson, Rodney (2005).
"Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden 1800–2000"
Diva
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
GDP and GNI in OECD Observer No246-247, Dec 2004-Jan 2005
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