Overview: Economic and Wealth Indicators

02:49 PM, July 14, 2014

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Gross domestic product (GDP) has been used for decades as the most important indicator of economic performance and prosperity. But the concept of GDP is increasingly coming under fire. Are we measuring completely irrelevant numbers? Robert F. Kennedy wise stated that GDP “measures everything except that which is worthwhile.” So which economic and wealth indicators do we have? Which are sustainable?

Gross domestic product
GDP measures the total value of all goods and services produced by a nation during the year. Many criticize its use because it does not distinguish whether money is spent on meaningful or meaningless items. Thus, the exploitation of resources, environmental damage, and even war and destruction appear in the statistics as supposed sources for increased wealth. On the other hand, the informal sector and subsistence farming are not measured, for example, though they are critical for a large number of poor people around the world.

Gross national product
GNP is the total income earned by the population of a country in a given period. However, GNP tells us nothing about the unequal distribution of wealth or income distribution in a society, for example.

Per capita income
Per capita income is derived from dividing national income by the population in a given period. For international comparisons, per capita income is converted, often using the US dollar. However, the different purchasing powers of different currencies are considered to be insufficient.

Human Development Index
The HDI has been published since 1990 by the United Nations Development Programme. In addition to GDP, it also takes into account life expectancy, literacy, and enrollment rates. From this holistic perspective, one comes to surprising results. China, for instance, is the second-largest economy in the world after the United States, in terms of GDP, but in the Human Development Index, the country ranks only 92. In 2010 the Inequality-adjusted Human Development Index (IHDI) was introduced. The IHDI can be viewed as an index of “potential” human development if there were no inequality.

Index of Sustainable Economic Welfare and the Genuine Progress Indicator
The ISEW also considers aspects such as income distribution; unpaid domestic work; public spending on health and education; pollution; resource consumption; and the costs of climate change. ISEW was developed further into the Genuine Progress Indicator.

Happy Planet Index

The Happy Planet Index combines values for life satisfaction, life expectancy, and the size of ecological footprints. Developed by the New Economics Foundation, in collaboration with Friends of the Earth UK, in July 2006, the index is weighted to give progressively higher scores to nations with smaller ecological footprints. In 2012 the best-scoring country for the second time in a row was Costa Rica, followed by Vietnam and Colombia.

Economic Diversification Index

The Economic Diversification Index shows the structural economic weaknesses of a country. It is composed of the share of manufacturing sectors in the GDP, the number of employees in the industry, electricity consumption per capita, and export concentration as a measure of the dependence of a country on the export of goods or commodities.

Big Mac Index
The Big Mac index is a simple indicator of the purchasing power of a currency. It is used because Big Macs are sold almost everywhere in the world and have a standardized size, composition, and quality. The idea was to make exchange-rate theory a bit more digestible.

Gini coefficient
The Gini coefficient, or Gini index, is a statistical measure developed for the representation of unequal distributions. The Gini coefficient takes a value between 0 for uniform distribution and 1 at maximum inequality. The Gini coefficient was proposed by Corrado Gini as a measure of inequality of income or wealth.

Nationaler Wohlfahrtsindex (NWI)
The NWI is based on the assumption that private consumption – the consumption of goods and services by households – contributes to the welfare of the people. Therefore, extra income for a poor household offers more benefits than extra income for a rich household. Thus, the more unequal the income distribution of a society, the lower the NWI.

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