First, an economy (from Greek οίκος – "household"
and νέμoμαι – "manage") means careful management of available
resources. GDP refers to the total economic output achieved by a country
over a period of time, in most cases, one year. As such, GDP is generally
a good indicator of a country's economic output, while GDP growth rate of economic productivity, and not net wealth of a
country nor well-being of its people.
Second, GDP often understates economic output for developing countries
with substantial share of non-market production (goods and services that are
produced either for personal consumption or for which exist no official record
of production). We all well know, what a huge proportion of Malawians engage in
growing own food, drawing water from own well, fetching firewood from a nearby
forest, catching fish from a river or lake, building houses with non-purchased
local materials, walk mostly as a means of transport, use family labour in the
house and farms, etc. The GDP of all these people is considered zero. Whereas,
in more commercialized economies, GDP often soars.
Third, GDP often understates economic output for developing countries
with substantial share of underground business transactions that are not
formally recorded for trade that is regarded ‘illegal’ eg informal mining,
informal employment, businesses in cross-border smuggling, unregistered
businesses of local foods, beers, prostitution, etc.
Fourth, GDP often understates economic output for developing countries
with substantial share of natural capital (unexploited minerals, land, water,
forests, fisheries, weather) which makes up a significant share (36%) of their
total wealth, yet their full contribution does not show up in GDP. Forestry,
for example, timber resources are counted in GDP but the other services of
forests, like carbon sequestration and air filtration are ignored.
Fifth, GDP overlooks the
depletion of national wealth and assets. Long‐term development is about
accumulation and sound management of national wealth and assets for economic
output (GDP) and well-being. Nobel Laureate Joseph Stiglitz once noted, a
private company is judged by both its income and balance sheet, but most
countries only compile an income statement (GDP) and know very little about the
national balance sheet. GDP looks at only one part of economic
performance—income—but says nothing about wealth and assets that underlie this
income. For example, when a country exploits its minerals for export, its GDP
rises, but it is actually depleting its wealth. The same holds true for over‐exploiting
fisheries or degrading land and water resources. These declining assets are
invisible in GDP and so, are not measured. Therefore, GDP does give misleading signals about the economic performance and people's well‐being for developing countries.
