GDP in the Present Global Economic Scenario - Essay Example

GDP GDP Introduction Before the invention of GDP during 1930-40s, Gross National Product used to indicate the growth pattern of any country. However, GDP has further developed this concept, as it is based on the total output and consumption figures of the specific country. Nevertheless, it does not take into consideration the domestic household output, as charges for cleaning a house or cooking food are not established. In addition, GDP does not indicate the general happiness of the country’s citizens, as it cannot be quantified. Discussing GDP The present global economic scenario has placed due significance to the GDP as it is considered to be the tool that measures a particular country’s prosperity level. As per the UN system, presentation of statistical record of GDP is the basic requirement for receiving financial loan or World Bank aid. The positive change in the GDP level, after consuming such loan is an indication that the financial aid has really helped the country. Around a few decades back, the military might was an indicator that displayed the country’s superiority and well-being perfection. However, now it is the economic independence and power, which has taken this place. Hence, an administrator or chief executive of any country is judged by the change in GDP levels that the person could manage, while heading the affairs of the country. During 1930s and 1940s, Gross National Product (GNP) became the tool to measure the country’s progress and prosperity level. GDP has carried this legacy to measure the nation’s living standard in terms of Gross Domestic Product. GDP is a good tool to analyze any country’s output and consumption data. This gives an indication of the goods produced in that country along with the rate of consumption of these goods by the people of specific country. However, this measurement was more accurate during the days when different nations had closed economy. With globalization, the world trade has received new boost, which encourages almost all nations to throw open its economy. This has resulted in synchronization of world economies. Hence, GDP can now be seen as a tool that measures economic prosperity of any nation in terms of change in the volume of trade conducted by the country within a specific period. However, GDP does not take into consideration the amount of domestic work for calculating the figures. The early inventors of GDP like Simon Kuznets and John Maynard Keynes did not take into account the amount of work done for doing different domestic chores like dish washing or laundry and housekeeping, as these jobs did not carry any price tag. Nevertheless, currently the fees paid to a nanny for childcare or a house cleaner can be one of the parameters for fixing price tag to the domestic work. Similarly, technology has made it possible to replace certain goods and such replacements are sometimes considered lifelong. This would mean that the production of goods replaced has reduced drastically, thus affecting the GDP measure.(Karabell) On the other hand, the amount of money spent by any nation on the social-welfare schemes or health care projects reflects directly on the GDP measurement of the specific nation. What GDP cannot measure GDP cannot measure the national happiness that a country can have. In fact, a chart, called “Gross National Happiness Index”, was developed by a small country like Bhutan to measure the quality of life in terms of the happiness that citizens of the country may be deriving from carrying out their professional activities and interacting with society. GDP indicates the change in the output and consumption rates. However, with technological advances, the possibility of producing more with less number of workers has become a reality. Hence, a positive change in GDP may not mean more employment for the people of the specific country. Nevertheless, increase in unemployment means reduction in consumption and it will have its affect on the GDP figures.(Karabell) Change in GDP of China China being second largest economy of the world has seen steady growth of its GDP, since it adopted financial reforms in the year 1979. The following paragraphs analyze he change in Chinese GDP over the years, as discussed in an article published in “The Guardian”, under the title of “China GDP: How it has changed since 1980”. (Sedghi) A study conducted by Congressional Research Service reveals that the yearly GDP rate was around 5.3% during the years preceding the economic reforms brought in by the Chinese government in 1979. This rate was almost consistent from 1960 to 1978.After the initial drop to 5% in 1980, the GDP of China jumped sharply to 15 percent in 1984-85. However, the economy cooling measures brought it down to around 5% in 1990.This again went up in the following year to the levels of around 14 to 15 percent. Since then Chinese GDP has been hovering around 10 to 12 percent, while it again touched 15 percent before 2008 world financial crisis, which resulted in the GDP of China going sown to 9.8%. With the smart revival, the GDP went up again. However, the economy required cooling down. The rebalancing measures undertaken by Chinese government aimed at cutting the country’s growth rate to 7.5%. Government officials have set this target in anticipation of continuing affect on the country’s exports due to Euro crisis and recession in USA. However, according to Chinese premier, the reduction in growth rate is in the direction of changing the economic pattern to make it more sustainable and efficient for the long term. The GDP phenomenon in China is different from other countries like USA, as Chinese currency does not adjust to the market dynamics. Instead, the exchange rate of this currency is determined by the government regulations. Since, the exchange rate is fabricated; the GDP of China does not reflect its true output, in comparison to the other counties of world. On the other hand, the purchasing power parity figures can give a better picture about the output and consumption of goods and services in the country. For example, the difference in money paid to buy any specific good or service in two different countries can indicate the real foreign exchange rate. Based on this theory, the estimate conducted by IMF for China’s GDP is 11.3 trillion Dollars for the year 2011. China needs to devaluate its currency exchange rate to reflect the real relation of Chinese Yuan with other major currencies of the world, like US Dollar. As per the comparisons drawn by “The Economist”, Chinese GDP has shown steady growth pattern. However, its real GDP growth rate has been 7.75 percent against 2.5 percent for USA, measured on an annual basis. The annual inflation rate in China was around 4%, while it was 1.5 percent in USA. The Yuan appreciation has been steady at the rate of 3% annually. According to this study, based at the current rate of real GDP growth, China can overtake USA only in the year 2018. Conclusion GDP has the significance of being world-recognized measurement for judging the economic health of any country. The growth in GDP reflects political will of specific nation to implement the necessary financial reforms for improving the country’s economic health. Hence, GDP is seen as a basis for disbursement of financial aid by bodies like World Bank and IMF. However, GDP measurement must accompany the real changes in other financial parameters like currency exchange rate change, which should be based on market dynamics. Works-cited (References) Karabell. Z, , “GDP rules the world, but should it?”, PBS Newshour, April 28, 2014, web, 6 Dec. 2014: Sedghi. A, “China GDP”, the guardian.com, 23 March 2012 web, 6 Dec. 2014: Read More