The Genuine Progress Indicator (GPI) is a national-level measure of economic growth and prosperity. It is an alternative metric to GDP.
GPI takes everything that GDP uses into account but adds other figures that examine whether the economic growth has a positive or negative effect on the people such as the cost of crime, the cost of ozone depletion, and the cost of resource depletion, among others.
In other words, it is an attempt to measure whether the environmental impact and social costs of economic production and consumption in a country are negative or positive factors in overall health and well-being.
GPI is designed to measure sustainable economic welfare rather than economic activity alone. To accomplish this, the GPI uses three simple underlying principles for its methodology:
Account for income inequality,
Include non-market benefits that are not included in GDP, and
Identify and deduct bads such as environmental degradation, human health effects, and loss of leisure time
Why is GPI better than GDP? GDP does not take into account the negative externalities of growth. Higher GDP may lead to a large rise in pollution, crime, and congestion, leaving people with lower economic welfare and lower levels of happiness. Therefore, GDP can be misleading, as in the account of economic welfare.
GDP only measures output, not how it actually affects people’s living standards and how it is used in society, which is very unlikely for GPI.
GPI encourages long-term planning i.e. sustainable growth, rather than short-term measures, which increase GDP at the expense of damaging the environment.
By focusing on a wider measure of economic indicators, GPI encourages policymakers to think in broader terms of economic welfare, and not just crude GDP statistics.
Disadvantages of using GPI: Many non-economic variables, such as the value of leisure time/ environment, are very subjective, and it can be difficult to assign an economic value. GDP is much simpler and gives less normative results.
GPI is not useful for judging the state of a business cycle.
Rather than GDI vs GPI, it is useful to use both and see them as complementary indexes. GDP will always have a use for economic accounting. However, it clearly has limitations.
Using an additional measure such as GPI helps to give a better understanding of real economic development as it includes analysis of living standards, natural capital, human impact on the environment and human and social capital.
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