The relation of the Gross Domestic Product to economic welfare - Essay Example

The Gross Domestic Product is a specific measure of a country's national output and provides a basic idea of how well-off a country is, compared withother countries. Moreover, the Gross Domestic Product (GDP) is the most commonly used benchmark of national income. It seeks to measure the sum of incomes received by the different types of sectors of the economy, from manufacturing and wholesale to agriculture and service industries. In most developed countries, this national data is published and revised every three months by the National Statistics Office. The GDP reports how much money was made in a given economy over a given period of time. The figures are "gross" because GDP does not allow for the depreciation of physical capital. In a sense, the GDP is a gross measure of market activity, of the volume of money changing hands. It does not take into account the desirable and the undesirable transactions in the economy. It does not take into consideration the total costs or gain. The major contributions of the household and volunteer sectors are not included in the computation of the GDP. The economists and policymakers state that raising the rate of growth of gross national product (GNP) and the GDP is the hallmark of economic development. This central dogma of development economics stems from the conviction that the way to economic progress in poor countries lies in increasing the rate at which the industries of that country progresses. The GDP is positively affected by the growth of local markets. The growth of local markets is achieved by changing the incentives for people to remain in long-term relationships. Long-term relationships are supported by social norms which includes reciprocity. Thus, the growth of markets in one set of goods and services can diminish the existing incentives for remaining in long-term relationships that cover transactions in other goods and services. When these incentives diminish, social norms are affected. (The New Statesman) However, if country A has a high GDP figure relative to country B, it does not necessarily mean that country is A is automatically better off. We have to look at their GDP figures closely. Some countries which have a high GDP are really high-performing economies. Take for example Luxembourgs. Luxembourg's GDP per head can be attributed to 90,000 citizens who go to certain parts of Europe such as Germany, France, Belgium and the Netherlands daily to work in the financial services sector. These workers were included in Luxembourg's population of 450,000. If they were added to this number, then the country's overall GDP per head would be smaller, but still among the top ranking countries in the OECD. China has also overtaken many European countries in terms of GDP figures. For example, China had overtaken Italy as the world's sixth-largest economy in 2004, and has overtaken France and the United Kingdom by the end of 2005. Growth rates in developed countries are just a fraction of thosed experienced in China: 3-4 percent for the US and 2-3 percent for Japan and Europe, against at least 8 percent for China. (Business Asia, March 2006). The effective marketing strategy of Chinese companies, private and public in China have added to their considerable profits and growth. (Lewis, et.al., 2006). However, in terms of quality of life and environmental safety levels, these European countries definitely have a higher quality of life and environmental levels compared to China. Thus, it is does not automatically mean that if a country has a high GDP then it is better off compared to another country with a lower GDP level. Niger has a GDP of 12.36 billion dollars in 2006. But upon close examination, it is just one of the poorest countries in the world, ranking last on the United Nations Human Development Index. In real figures, Niger's GDP looks huge. But upon closer examination, its economy is based on subsistence crops, livestock, and some of the world's largest uranium deposits. Traditional subsistence farming, herding, small trading, seasonal migration, and informal markets support the economy. Niger's agricultural and livestock sectors are the main contributors to the economy. South Africa is the considered as the most advanced, and productive economy in Africa, with a gross domestic product (GDP) nearly four times that of Egypt. It possesses a stable infrastructure presenting an efficient distribution of goods to major urban centres in the region, and well-developed financial and legal sectors. Comparing firm export participation across African countries, South Africa has a very high proportion of firms participating in the export market. Approximately 77% of large South African firms export. This is a higher proportion than in other African countries. However, compared to Angola, one of the region's most unstable countries, South Africa has a lower GDP per capita growth at 3.4% compared to Angola's 12.3%. The annual average rate of growth of Angola's Gross Domestic Product (GDP) reached 15 percent over the 2002-2007. Angola's GDP may be very high compared to South Africa but most of its revenues come from one industry: oil. Hence, only the oil industry represents a well-developed structure. The rest of the economy is agricultural. Compared to South Africa, Angola's legal, financial, political and social structures are less stable. A high GDP figure for country A compared to country B does not necessarily translate to better off scenarion, i.e., a higher quality of life and welfare levels. One needs to closely analyze the figures and deduce from the disparities. Reference: OECD Observer, No. 246-247, December 2004-January 2005. "China's Economic Prowess Climbs Fast: China Is Rapidly Climbing the World Economic League, with the Latest Revision of Its GDP Growth Underlining Its Rising Importance." Business Asia. Volume: 14. Issue: 1. March 2006. Dasgupta, Partha. 'Economic Growth Often Accompanies a Decline in a Poor Country's Wealth': Are Developing Countries Really Doing Better, as Orthodox Economists Say New Statesman. Volume: 132. Issue: 4662. November 3, 2003. Lewis, K.S. Lim, Frank Acito, Alexander Rusetski. Development of Archetypes of International Marketing Strategy. Journal of International Business Studies, Vol. 37, 2006. Read More