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Gross Domestic Product as a Measure of Well-Being

Gross Domestic Product or GDP is defined as the “total market value of all goods and services produced in a calendar year within a country”. GDP is widely used as a measure to assess the health of an economy. Thus countries whose GDP is rising are considered high growth economies and those that have absolute GDP in trillions of dollars are considered rich.

However, GDP has several shortcomings as a measure of “economic well-being”. These relate to the fact that GDP has to be adjusted for inflation, distribution and population growth. The first among the reasons is that only work that is paid for is measured. Thus the everyday work that we do in our homes (and by stay-at-home wives) is unaccounted for. Voluntary work is also neglected. In these days of the internet economy and open source software, GDP as a measure falls short since these are essentially unpaid work. The other criticism of GDP is that it does not measure the “income inequalities” in a country. Thus, the GDP of a country like the US may be huge, but the well-being of its citizens because of income disparities is overlooked. There is something called the “Human Development Index” that is often touted as an alternative to GDP measures as far as economic well-being is concerned. The argument here is that this is an “inclusive” measure of economic success rather than the GDP accounting method. Thus, we often see countries in Asia, the so-called “emerging economies” that have a high rate of GDP growth but are at the bottom of the HDI. GDP also does not measure the quality of life and the goods produced. Thus, a country might be having high levels of GDP growth but access to basic services may be denied to a majority of its citizens. And the quality of goods produced may be abysmal though the price for the same may be high. Finally, GDP is not an indicator of sustainable growth as “green economics” or its impact on the environment is discounted.


Dornbusch, Rudiger, & Fischer, Stanley (2004). Macroeconomics (p. 157, 558). New York: McGraw-Hill.