Do well-known indicators really reflect what they are supposed to? Given today’s challenges regarding society, the environment and the economy, the sustainability of our economic system is questioned. GDP is currently one of the most important indicators of our economy and is considered a proxy of economic health and standard of living of a country. However, the measure poses problems in terms of the appropriate portrayal of genuine progress. This thesis aims at proposing alternative measures which represent sustainable development in an improved way over GDP. Thereby, the economic, social and ecological dimensions of sustainable development form the basis of examination. In the first place, GDP is examined for its suitability as a progress indicator. Its relevance in policy making and reasons for its persistence are worked out. Finally, alternatives which are grouped in adjusting, supplementing and replacing GDP, are presented and examined according to their coverage of the sustainable development dimensions. The examination shows that there are indeed measures which represent genuine progress in a better way. However, those indicators pose drawbacks regarding their methodology, credibility and complexity. Therefore, they cannot sufficiently replace or adjust GDP. Supplementing GDP currently appears to be the most feasible approach since it sets GDP in a more sustainable context without neglecting its benefits.
Table of Contents
1. Introduction
1.1 Problem description
1.2 Objective and methods
2. Sustainable development and GDP
2.1 Defining sustainable development
2.2 Defining GDP – Definition and calculation
2.3 Creating GDP - The development of GDP
2.4 Drawbacks and limitations of GDP
2.4.1 Economic drawbacks
2.4.2 Ecological and social drawbacks
2.5 Benefits of the GDP
3. Implications for policy making
3.1 Importance of indicators for political decisions
3.2 GDP affecting economic decisions and policy making
3.3 Barriers to change GDP
3.4 Political efforts towards sustainable development
3.4.1 Stiglitz-Sen-Fitoussi Commission
3.4.2 Enquete Commission “Growth, Prosperity, Quality of Life“
4. Alternatives to GDP in support of sustainable development
4.1 Indicators adjusting GDP
4.1.1 Index of Sustainable Economic Welfare (ISEW) and Genuine Progress Indicator (GPI)
4.1.2 Green GDP
4.2 Indicator sets supplementing GDP
4.2.1 Green satellite accounts
4.2.2 Sustainable Development Goals (SDG)
4.3 Indicators replacing GDP
4.3.1 Human Development Index (HDI)
4.3.2 Ecological Footprint (EF)
4.3.3 Case Study: Bhutan’s Gross National Happiness (GNH)
4.4 Correlations between GDP and sustainability elements
5. Discussion
6. Conclusion
Research Objectives and Topics
This thesis investigates whether the Gross Domestic Product (GDP) serves as an appropriate indicator for measuring progress in the context of sustainable development, and explores alternative indicators that better capture social, economic, and ecological dimensions.
- Critique and limitations of GDP as a progress indicator
- Political implications and barriers to changing established economic measures
- Categorization of alternative metrics (Adjusting, Supplementing, Replacing GDP)
- Case study analysis of Bhutan’s Gross National Happiness (GNH)
- Evaluation of indicator effectiveness regarding sustainable development
Excerpt from the Book
2.4.1 Economic drawbacks
The informal economy is perceived as unreported market activities, legal or illegal, which are not reflected in GDP and happen outside the formal market. However, the informal sector indirectly influences GDP because the value added may increase the revenue and output in the formal sector. In this context, examples for legal market activities would be barter of legal services and goods or fringe benefits. Illegal activities include trade with stolen goods, drug dealing and theft (Schneider, 2002, pp. 3-4). The informal sector represents a crucial problem since it has an impact on a nation’s progress, economic growth as well as the political situation. There are many problems for the employees in this sector, such as bad working conditions and a lack of social protection and insurance (Islam & Alam, 2019, p. 1). Informal economy is a larger issue in developing countries than in developed countries. A study of the World Bank (2016) came to the conclusion that the informal market activities take up more than 50% of GDP in developing countries whereas the share is only around 5% in developed countries. Therefore, for many developing countries GDP is very low and gives a mistaken idea of the actual economic situation of a country (Van den Bergh, 2007, p. 7).
Summary of Chapters
1. Introduction: This chapter outlines the global challenges facing the current economic model and defines the research objectives regarding the limitations of GDP as a progress indicator.
2. Sustainable development and GDP: This section defines sustainable development, explains the calculation and history of GDP, and critically analyzes its economic, social, and ecological limitations alongside its benefits.
3. Implications for policy making: This chapter examines how GDP influences political decisions, the persistence of the indicator despite its flaws, and historical political efforts to establish more sustainable metrics.
4. Alternatives to GDP in support of sustainable development: The core chapter categorizes alternatives into those that adjust, supplement, or replace GDP, featuring specific examples like ISEW, Green GDP, HDI, EF, and GNH.
5. Discussion: This chapter synthesizes the findings, comparing the various alternative indicators across economic, social, and ecological dimensions to determine their suitability as progress measures.
6. Conclusion: The final chapter summarizes the main findings, suggesting that while replacing GDP is currently unfeasible, supplementing it with alternative sets remains the most promising approach for policy development.
Keywords
GDP, sustainable development, economic progress, policy making, well-being, ecological footprint, human development index, informal economy, sustainability indicators, social progress, Green GDP, Bhutan, GNH, environmental accounting, resource depletion.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis focuses on evaluating the suitability of GDP as an indicator for progress within the framework of sustainable development and explores potential alternatives.
What are the central themes of the work?
Central themes include the critique of GDP, the role of economic indicators in political decision-making, the multidimensionality of sustainable development, and the comparison of alternative measurement approaches.
What is the core research question?
The core research question asks which alternatives to GDP can display sustainable development in a more comprehensive and improved way.
Which scientific methods are employed?
The research is a compilation study based on a comprehensive literature review, examining and comparing the methodology, advantages, and drawbacks of various economic indicators.
What does the main body cover?
The main body covers the definition and limitations of GDP, the political barriers to changing established metrics, detailed analysis of alternative indicators, and a specific case study of Bhutan.
Which keywords characterize the work?
Key terms include GDP, sustainable development, economic progress, environmental accounting, social well-being, and alternative indicators like ISEW, GPI, HDI, and GNH.
Why is the informal economy a problem for GDP calculation?
The informal economy, which can account for over 50% of GDP in some developing countries, is not reflected in standard calculations, leading to a distorted view of the actual economic situation.
What does the Bhutan case study illustrate?
The Bhutan case study illustrates an attempt to move beyond economic growth by using the Gross National Happiness (GNH) index to prioritize the holistic well-being of citizens through multiple domains of life.
Why is "supplementing" GDP considered more feasible than "replacing" it?
Replacing GDP is seen as too extreme due to its deep integration into global economic systems; supplementing it allows for a more sustainable context without discarding the established benefits of the measure.
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- Theresa Klein (Autor:in), 2021, Measuring progress. Gross Domestic Product (GDP) and alternative indicators in the context of sustainable development, München, GRIN Verlag, https://www.grin.com/document/1032810
