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National Accounts as a Measure of Welfare

pie pictureProblems with National Accounts
Alternative Indicators
Should National Accounts be Modified?

Gross Domestic Product - GDP
total value of all goods and services produced
Gross National Product - GNP
total income of all residents of a country
GNP=GDP+income from other countries except from exports


Economic Growth as a Measure of Welfare

Economic growth is supposed to be a measure of a nation's 'standard of living'. It is measured by changes in gross national product (GNP). If the GNP rises&emdash;that is, if more goods and services are produced over a given period&emdash;it is assumed that everyone is better off. If the GNP goes down, even over a short period of time, economists say there is a recession and critics say the government is not managing the economy properly. The GNP of a country divided by the number of people in the country gives an average figure for the standard of living of the population as a whole.

GNP was first introduced as a measurement device in 1942 following the Great Depression, when economists and policy-makers wanted to find out more about the relationship between the economy, business cycles and employment. Those who favoured this measure were not, at the time, concerned about environmental problems or scarcity of natural resources; consequently, they saw no reason to incorporate measures of natural resource use or environmental degradation.

GNP is still widely used as a measure of how well an economy is performing. It is widely accepted as the standard measure of economic success by economists, politicians and the general public in Australia and elsewhere. It is used by individual nations and by the World Bank and the International Monetary Fund (see part 4) as a basis for their policies. They all define successful economic development as a satisfactory rate of increase of GNP per person.

In its 1990 discussion paper on ecologically sustainable development, the Commonwealth government says that it takes a broad definition of 'standard of living'&emdash;broad enough to include income levels, consumption of goods and services, protection of the environment, social justice and personal freedoms. However, like governments of other nations, it measures the standard of living and economic growth by changes in both GDP and GNP per person.

Source: Sharon Beder, The Nature of Sustainable Development, 2nd ed. Scribe, Newham, 1996, p.35.

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© 2001 Sharon Beder