Gross domestic product (GDP) is the basic measure of a country’s overall economic output based on the market value of all the goods and services the country produces. Most measures of economic performance used by government officials to inform their policies and decisions are based on GDP figures. But, many concerns have been raised about the adequacy of GDP-based measurements given the major structural changes that economies around the world have been going through over the past few decades.
GDP is essentially a measure of production. While suitable when economies were dominated by the production of physical goods, GDP does not adequately capture the growing share of services and the production of increasingly complex solutions that characterize advanced economies. Nor does it reflect important economic activity beyond production, such as income, consumption and living standards.
A few years ago, a Commission on the Measurement of Economic Performance and Social Progress led by Nobel-prize winning economists Joseph Stiglitz and Amartya Sen was convened to look at the limits of GDP as an indicator of economic performance and social progress.
“What we measure affects what we do; and if our measurements are flawed, decisions may be distorted . . .,” it noted in its report issued in September of 2009. “So too, we often draw inferences about what are good policies by looking at what policies have promoted economic growth; but if our metrics of performance are flawed, so too may be the inferences that we draw.”
The Commission recommended complementing classical measures of GDP and economic production with additional measurements that captured people’s well being, as well as factoring in measurements of sustainability to help reflect the evolution of the economy into the future.