The importance of indicators. The GDP

The importance of indicators. The GDP

We are immersed in days concerned about the Gross Domestic Product (GDP) as an indicator continues to grow. Motivated by the fact that the estimates of the International Monetary Fund (IMF) leave no room for optimism, with Spain’s GDP falling by nearly 8%, that of the Eurozone by around 7.5% and at a global level by 3%, the conjectures about future scenarios are various and diverse.

The fact of the importance of GDP is reflected in the emergence of new approaches such as that of New Zealand Prime Minister Jacinda Ardern, which is based on the actual measurement of the quality of life of “its people”, something that has catapulted New Zealand to be considered a progressive country far removed from the so-called “tyranny of GDP”.

But what is GDP in reality?

By definition, GDP is an indicator of an economic nature that reflects the monetary value of all goods and services produced by a country, region or set of areas in a given time, usually a year.

According to the above definition, changes in the indicator will mark the wealth or poverty of a given country. Generally speaking, there are two types of GDP:

  • Nominal GDP: includes the monetary value of all goods and services produced by a country in the year in which these goods are made.
  • Real GDP: includes the monetary value of all goods and services produced by a country at constant prices.

Furthermore, if we divide the GDP by the number of inhabitants, we obtain the so-called GDP per capita. At this point, the main differences with the reality of the population’s welfare are established.

As anticipated, GDP is a good indicator of production, of the aggregate output of a country, but who produces, how is it made, and why is it produced, are they taken into account? Let’s take it one step at a time. Firstly, the relationship between the factor of production labour and GDP is not entirely clear; if we try to link characteristics such as unemployment with GDP, our conclusion is clear if we are talking about a reduction to the absurd, i.e., with unemployment figure of 100%, GDP should be zero, however, with reasonable unemployment rates, the approximation to GDP is not so precise. Secondly, as mentioned above, the GDP is an indicator of the total goods and services produced during a year; however, if essential criteria such as compliance with the Occupational Hazards Act have been met, it matters little or nothing. Finally, why it is produced cannot be discerned from the GDP study either; we can have a region that has just suffered a war with a GDP that is undoubtedly higher than that of an area that has been living in peace for 15 years.

Therefore, a first step in approximating the GDP to the social reality could be to study it in depth from a qualitative point of view and not so much from a quantitative point of view.

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