GDP and Economic Prosperity

What is GDP

Often Gross Domestic Product (GDP) is understood as a criterion to measure Economic Progress of a state. Here through this article I would like to contradict with this notion that “better GDP means better economic prosperity”. Let’s first understand what GDP really stands for. Gross Domestic Product is the sum total of all the income generated by normal residents of a country during a financial year. It is the income generated in all the sectors; primary, secondary and tertiary. It is the gross income which means all the depreciation accounted for is also included. It is not just the income of natural born citizens but also the income earned by non-citizens who are otherwise normal residents. It is generally understood that as the income(GDP) of a nation rises so does its economic prosperity of people.

Is GDP a yardstick to measure prosperity?

The answer is clear no. GDP can’t be considered a yardstick to measure prosperity. Of course rising GDP is a good sign for the economy but there may be instances when GDP rises and prosperity of an economy falls. Following points must be kept in mind to know the prosperity level of an economy.

1. 1. With rising GDP if population of an economy also increases in the same proportion then it means per capita income remains same. How could we say that economy prospers when per capita income remains constant?
   2. If at all we need to measure GDP, we should do it at previous year’s prices (constant prices)
   3. There may be instances when GDP rises and per capita income also rises when the rich class (small fraction of the society) proportionately earns much higher than total contribution of middle class and marginal people who are larger part of the society. In other words rising GDP accompanies with rising inequality in income distributio
   4. If rising GDP doesn’t improve employment situation, doesn’t alleviate poverty then such a rise in GDP is merely a makeup on the face of an ailing economy.
   5. Health, Education, infrastructure and other sectors which are generally government funded may have been neglected even when the GDP rises.

So it can be concluded that GDP is not a good criterion to measure economic prosperity of a nation