One of the most important questions of development politics is what development actually means and how you can measure it. Although nobody will seriously dispute the fact that development has an important political dimension it is usually the economy which is in the focus of multinational organizations as for example the IMF or the Worldbank. The most important indicator for economic prosperity is the Gross Domestic Product (GDP) respectively the GNP which is a close relative. In fact the Worldbank defines developing countries as “countries with low or middle levels of GNP per capita” (Worldbank Glossary). This shows the tremendous importance the GNP has for the work of the Worldbank. In the following essay the value of the GDP as an indicator for development will be assessed. It will be shown that it is a valuable
indicator under certain conditions, but that it is clearly not sufficient to make sound statements about the development of a certain country. In fact it can even be misleading in some respects and dividing between developing and developed countries just on the basis of the GNP is certainly not appropriate. At first I will explain what GDP, GNP and its growth rates actually mean and what they can tell about the economy of a state. The specific advantages of this indicator will be mentioned and the correlations between it and development. Then I will oppose that with the great variety of problems the GDP and similar indicators have. As a conclusion I will show that for a fairly acceptable measurement of development it will be necessary to include some other indicators beside the GDP as well. Development is more than a high level of economic activity it also includes the general standard of living and the degree of personal freedom and
security. The GDP is defined as the value of the final goods and services produced in a country in one year (Mankiw 2001: 522). This value is usually given in US-Dollar and equals the total amount of all sorts of official income and profits and also the sum of the total consumption, investment, government puchases and net exports in a country in a year. The difference between GDP und GNP, the Gross National Product, is that the GNP measures the value which was produced by the citizens of a country, wherever they live and work. That means for example that the profit a British company made in a developing country contributes to the GDP of the developing country but not to its GNP but to the GNP of the United Kingdom.
Table of Contents
- Importance of GDP/GNP for IMF and Worldbank
- Concept of the GDP/GNP
- Definition of the GDP, GNP and growth rate
- Advantages of the GDP/GNP
- Preconditions for the use of GDP/GNP
- Problems of the GNP
- Lack of statistical reliability
- Quality not part of the GNP
- Problem of the shadow economy
- Problematic contributions to GNP
- Unequal distribution of the total income
- Environment not included in GNP
- Immaterial values not included in GNP
- Improving the measurement of development through further indicators
- Evaluation of the GNP as an indicator for development
Objectives and Key Themes
This essay assesses the Gross Domestic Product (GDP) and Gross National Product (GNP) as indicators of development. It aims to demonstrate that while these metrics are valuable under specific conditions, they are insufficient on their own to accurately measure a country's development and can even be misleading. The essay explores the advantages and limitations of using GDP/GNP, highlighting the need for additional indicators to provide a more comprehensive understanding of development.
- The importance and limitations of GDP/GNP as indicators of development.
- The relationship between economic growth and overall development.
- The challenges of statistical reliability in developing countries.
- The exclusion of qualitative factors and societal well-being from GDP/GNP calculations.
- The need for alternative and supplementary indicators to better measure development.
Chapter Summaries
Importance of GDP/GNP for IMF and Worldbank: This introductory chapter establishes the central role of GDP and GNP in the assessment of development by international organizations like the IMF and World Bank. It highlights the World Bank's classification of developing countries based on GNP per capita, emphasizing the significance of these indicators despite their limitations. The chapter sets the stage for a critical examination of GDP/GNP as comprehensive measures of development, arguing that while valuable, they fall short of capturing the multifaceted nature of development.
Concept of the GDP/GNP: This section defines GDP and GNP, clarifying the distinction between them and explaining the calculation of growth rates. It details the advantages of using these indicators, highlighting their simplicity and the strong correlation observed between higher GNP per capita and improved social indicators such as health, education, and life expectancy. However, this chapter also notes crucial preconditions for accurate interpretation, stressing the importance of using purchasing power parity-adjusted figures and acknowledging the limitations of simple comparisons between countries with different economic starting points. The inherent complexity of comparing economic figures across diverse nations is emphasized.
Problems of the GNP: This chapter critically examines the shortcomings of using GNP as a sole measure of development. It addresses the lack of statistical reliability in many developing countries, often due to political instability or inadequate data collection. The chapter further points out the failure of GNP to capture the quality of goods produced and the vulnerability of developing economies heavily reliant on a few raw materials. It also emphasizes the neglect of qualitative aspects like environmental sustainability and social equity in GNP calculations. The discussion underscores that higher GNP does not necessarily correlate with better development unless other key factors are also considered.
Keywords
GDP, GNP, development, economic growth, poverty, inequality, statistical reliability, purchasing power parity, World Bank, IMF, alternative indicators, social indicators, sustainable development, qualitative factors, developing countries, developed countries.
Frequently Asked Questions: A Comprehensive Language Preview
What is this document about?
This document provides a comprehensive overview of a text analyzing the Gross Domestic Product (GDP) and Gross National Product (GNP) as indicators of development. It examines their importance, limitations, and the need for supplementary indicators to offer a more holistic understanding of development.
What topics are covered in the Table of Contents?
The table of contents includes sections on the importance of GDP/GNP for international organizations like the IMF and World Bank, the concept of GDP/GNP (including definition, advantages, and preconditions for use), problems associated with GNP (such as statistical reliability, quality issues, the shadow economy, and environmental concerns), improving development measurement through additional indicators, and a final evaluation of GNP as a development indicator.
What are the main objectives and key themes?
The main objective is to assess GDP/GNP as development indicators, demonstrating their value under specific conditions but highlighting their insufficiency as standalone measures. Key themes include the limitations of GDP/GNP, the relationship between economic growth and development, challenges in statistical reliability, the exclusion of qualitative factors, and the need for alternative indicators.
What are the chapter summaries?
The summaries cover the importance of GDP/GNP for the IMF and World Bank, clarifying their central role despite limitations. The concept of GDP/GNP is defined and its advantages and preconditions are detailed. The problems of using GNP as a sole measure are explored, addressing issues like statistical unreliability, the neglect of quality and qualitative factors, and the limitations in capturing the complexities of development.
What are the key weaknesses of using GDP/GNP as sole indicators of development?
The document highlights several key weaknesses: lack of statistical reliability, particularly in developing countries; failure to account for the quality of goods and services; the shadow economy's impact; neglecting environmental concerns and social equity; unequal income distribution; and the exclusion of immaterial values. Essentially, GDP/GNP provide an incomplete picture of a nation's overall well-being.
What are the advantages of using GDP/GNP?
The advantages include their simplicity in calculation and the observed correlation between higher GNP per capita and improvements in social indicators like health, education, and life expectancy. They provide a readily available benchmark for comparison between countries, although this needs careful interpretation considering purchasing power parity and economic starting points.
What alternative indicators are suggested for a more comprehensive understanding of development?
The text implicitly advocates for the use of supplementary indicators, beyond GDP/GNP, to gain a more holistic view of development. While specific alternatives are not explicitly listed, the discussion implies a need for indicators capturing qualitative factors, social equity, environmental sustainability, and other aspects of societal well-being.
What is the overall conclusion regarding GDP/GNP as development indicators?
The overall conclusion is that while GDP/GNP are valuable tools under certain conditions, they are insufficient on their own to accurately measure a country's development. Their limitations necessitate the inclusion of additional indicators to provide a more nuanced and comprehensive understanding of development progress.
What are the keywords associated with this document?
The keywords include: GDP, GNP, development, economic growth, poverty, inequality, statistical reliability, purchasing power parity, World Bank, IMF, alternative indicators, social indicators, sustainable development, qualitative factors, developing countries, and developed countries.
- Quote paper
- Martin Lochner (Author), 2005, Are GDP/GNP appropriate measures of development?, Munich, GRIN Verlag, https://www.grin.com/document/90290
