Differences Between GDP and GPI

GDP vs GPI

Macroeconomics is the study of the economic condition of a nation. It is a wide economic study that calls for definite methods of measuring the nations’ overall value of products and services. This is when Gross Domestic Product (GDP) and Genuine Progress Indicator (GPI) come in. Both measure the economic standing of countries. But what are the differences between the two? Which ones can give a better measurement of a nation’s economic condition? It must be considered that it is not just production and services that need to be measured. It should also include an analysis of how those measurements affect the lives of the populace. So read on and dig deeper to understand the differences between GDP and GPI.

More About GDP

Gross Domestic Product is a summation of the country’s overall production of goods and total rendered services. Its coverage is within the country’s borders making the figures of the GDP running into trillions of dollars annually for big, developed countries like the U.S. The computation for the GDP derivation, however, is not easy to determine. That is why seasoned and experienced economists are tasked by the government (giving them access to pertinent economic data) to figure out an accurate GDP figure. There are three methods used to derive GDP figures. The first one is the income method which is about totaling the income of all producers in the country. The second one is the expenditure method which is about summing up all the expenses incurred by consumers and buyers. The last one is the product method which is totaling the value of goods and services made and provided by the nation.

More About GPI

GPI is a GDP with an added element – welfare figures. Welfare countries have developed the GPI over the years to make the economic progress more holistic in relation to the distribution of a nation’s economic growth to the lives of its individual citizens. This is the main difference between GDP and GPI.  GPI factors in the human factor of progress and how lives are improved by the nation’s growing economy. Standard of living is a key result area for GPI. This is not covered by the GDP making it limited in measuring up the real state of the nation in a people-to-people level.

The Limitations of GDP

Perhaps the most obvious difference between the GDP and GPI are each other’s limitations and coverages. It must be understood, however, that GPI figures cannot be derived without the GDP numbers. GDP is the jump off point of the GPI, and both can complement each other very well. GDP cannot ascertain the income disparity of the whole populace. It does not have the ability to dig deeper into tax savings and voluntary production. It cannot also provide for qualitative measures of the products and services produced. GDP is strictly a quantitative study. It also cannot specify what was actually produced. It is even possible for the GDP numbers to go up without any bearing to the economic state of the nation.

GPI and Its Strengths

The differences between the GDP and GPI are highlighted in the GPI’s ability to differentiate economic and uneconomic gains in the GDP figures. For example, the GPI does not blindly consider the economic implications of a divorce. GDP might reflect a divorce as a positive economic event because of the rise in services rendered through the divorce attorney’s legal fees. GPI, however, considers the emotional and financial strain of such a legal process seeing it as uneconomic and a liability in the welfare of the populace. GPI looks into natural disasters and how the GDP can rise due to the rebuilding efforts. GPI also considers green economics, ozone depletion concerns, and the implications of resource depletion to the overall economy of the nation. GPI is simply a hybrid GDP that seeks to specify its metrics while refining its numbers further. This is the main difference between the GDP and GPI.

Summary:

1. “Gross Domestic Product” refers to a country’s total production of services and goods. Meanwhile, Gross Progress Indicator indicates the GDP plus welfare figures.

2. One needs to calculate the GDP before coming up with the GPI.

3. GDP is solely a quantitative study while the GPI is more qualitative.

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