GDP – Alternative measures

ALTERNATIVE 1 – GVA:

One alternative to GDP for measuring the state of an overall economy is GVA – Gross Value Added

  • GVA claims to measure the contribution of each individual producer, industry or sector
  • GVA = Output value – Intermediate consumption (too complex for most)
  • Other definitions include:
    • The value of the amount of goods and services produced less the cost of all inputs and raw materials that are directly attributable to that production
    • The grand total of all revenues, from final sales and (net) subsidies, which are incomes into the business used to cover expenses (e.g. wages, salaries, dividends), savings (profits, depreciation), and (indirect) taxes

 

Both GDP and GVA thus attempt to measure output value – GDP from the consumers’ standpoint, GVA from the producers’

Some say GVA is more useful for policymakers when deciding which sectors need incentives or not – whilst GDP is thought to be better for comparing nations overall

In the absence of anything else, and expecting GVA statistics to be at least as flawed as any on GDP, there is great concern about any policies which are based on either of them

And neither measure is useful to those managers on the front-line who determine most of a nation’s productivity level – except that some who might need government support for major benefit to the nation might not get it – and others do instead

ALTERNATIVE 2 – NNP:

According to economist Joseph Stiglitz, we should stop using GDP and emphasise NNP – Net National Product – instead:

  • NNP is more commonly known as ‘national income’ – the sum total of the various incomes open to residents of a country, thus placing human beings at the centre of economic activity
  • GDP to a large extent reflects the production obsessions of post-war decades where the accumulation of goods was thought to be an end in itself and an increase in production was a solution to everything

 

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