However there are many critics and criticisms of GDP per capita in measuring economic growth as it does not take into account other elements which are important in explaining well-being, and thus leading to a number of people have begun to challenge the power of this measure, pointing out its insufficiency and proposing alternatives.
A country’s GDP may grow at a very fast rate and yet only a small proportion of its population could be the benefices of such growth, while the masses of its population may not experience any improvement in their standard of living. There may be growth but no development.
Secondly, a fast growth rate in total output may indicate a healthy state of economy, but if population growth rate matches the output growth rate, then per capita grown rate is negligible.
Thirdly, the use of per capita real income, converted into the foreign exchange rate, may not always be an adequate index to measure the development in a world of floating exchange rates for an index of real GDP adjusted for changes in terms of trade.
In many developing countries there often are substanstantial amounts of economic activity taking place without an exchange of money. For example, agriculture remains an important facet of economic life in many countries. If some households are producing food simply for their families own consumption than there is no reason for money to take a part in this transaction. And thus such activity will have no record as a part of GDP.
There also may be variation in the effectiveness of data collection agencies in different countries, and variation in the size of the informal sector
Finally GDP may neglect some important aspects of the quality of life. A country [X] may have a lower per capita real income than the other [Y], but the quality of life enjoyed by the citizens of X may be better than of Y. It is important to remember that different societies tend to set different priorities ton the pursuit of growth and the promotion of education and health.
The above analysis suggests that the per capita real income growth rather is not a very satisfactory measure of economic development and that it needs to be supplemented by other indicators. On the other hand
- doesn't count unpaid labour, especially women's care work.
- doesn't count externalities - costs that are externalized (passed on ) to someone else. For example, polluting factory are able to pass on the cost of damage to health and the environment.
- does count negative goods - the clean up of a toxic waste dump is counted as a plus in terms of GDP.
- ignores distribution, quality of life, equality, sustainability
- ignores the question of whether the world can sustain high rates of growth given the depletion of non-renewable resources and environmental damage
Introduction→ explain gdp per capita and its current involvement into the economy.
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