The relation of the Gross Domestic Product to economic welfare Essay

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 with other countries. Moreover, the Gross Domestic Product (GDP) is the most commonly used benchmark of national income. Introduction 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,