gnp is not a perfect measure for welfare economics

Presented By

P.Sudhakara Reddy

• Gross national product (GNP) is the total income earned by the resources owned by the legal residents of a country in a given time period.

• GNP = GDP + income earned from foreign residents – income paid to foreign residents

• GNP = GDP + net income from foreign residents (NIF)

• GNP includes the aggregate value of goods, such as cars, houses, food and drinks, as well as the value of services such as legal and medical fees that are produced and purchased by a nation during a given time period.

“.. Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets…

… Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. “

Sustainable Development- It defines development as sustainable if it ensures “that it meets the needs of the present without compromising the ability of future generations to meet Sustainable Development for their own needs.. and extending to all the opportunity to fulfil their aspirations for a better life.”

In general the GNP measures everything that has a market value.

It doesn’t include housework, neighborhood help, leisure time, natural resource degradation, natural sink capacity depletion or income distribution

Another inadequacy of the GNP is its narrow, at times ethnocentric, view of wealth and progress. By definition, the GNP ignores diverse visions of the goals of development -- not to mention cultural differences that lie far beyond the scope of most economists' concerns.

Single indicator, comparison over space/time Three basic dimensions

◦Long and healthy life◦Knowledge◦Decent standard of living

Weighted combination of GDP per capita, life expectancy at birth, adult literacy, population in education

Variants including gender-related index Emphasis on development, potential

• The GDI (Gender-related Development Index) - the HDI adjusted for gender inequality

• The GEM (Gender Empowerment Measure) - Measures gender equality in economic and political participation and decision making

• The HPI (Human Poverty Index)

- Captures the level of human poverty

Table 1: India’s human development index 2007

HDI value Life expectancy at birth (years)

Adult literacy rate (% ages 15 and above)

Combined gross enrolment ratio 

(%)

GDP per capita(PPP US$)

1. Norway (0.971) 1. Japan (82.7) 1. Georgia (100.0) 1. Australia (114.2) 1. Liechtenstein (85,382)

132. Bhutan (0.619) 126. Turkmenistan (64.6) 118. Congo (Democratic Republic of the) (67.2)

132. Madagascar (61.3) 126. Cape Verde (3,041)

133. Lao People's Democratic Republic (0.619)

127. Lao People's Democratic Republic (64.6)

119. Egypt (66.4) 133. Trinidad and Tobago (61.1)

127. Guyana (2,782)

134. India (0.612) 128. India (63.4) 120. India (66.0) 134. India (61.0) 128. India (2,753)

135. Solomon Islands (0.610)

129. Yemen (62.5) 121. Ghana (65.0) 135. Morocco (61.0) 129. Viet Nam (2,600)

136. Congo (0.601) 130. Togo (62.2) 122. Rwanda (64.9) 136. Nepal (60.8) 130. Nicaragua (2,570)

182. Niger (0.340) 176. Afghanistan (43.6) 151. Mali (26.2) 177. Djibouti (25.5) 181. Congo (Democratic Republic of the) (298)

Table 2: Selected indicators of human poverty for India

Human Poverty Index (HPI-1)

Probability of not surviving to age 40 

(%)

Adult illiteracy rate (%ages 15 and above)

People not using an improved water source 

(%)

Children underweight for age 

(% aged under 5)

1. Czech Republic (1.5) 1. Hong Kong, China (SAR) (1.4)

1. Georgia (0.0) 1. Barbados (0) 1. Croatia (1)

86. Djibouti (25.6) 103. Bolivia (13.9) 118. Congo (Democratic Republic of the) (32.8)

74. Kyrgyzstan (11) 135. Yemen (46)

87. Cambodia (27.7) 104. Bhutan (14.2) 119. Egypt (33.6) 75. Syrian Arab Republic (11)

136. Timor-Leste (46)

88. India (28.0) 105. India (15.5) 120. India (34.0) 76. India (11) 137. India (46)

89. Ghana (28.1) 106. Yemen (15.6) 121. Ghana (35.0) 77. China (12) 138. Bangladesh (48)

90. Malawi (28.2) 107. Papua New Guinea (15.9)

122. Rwanda (35.1) 78. Samoa (12)

135. Afghanistan (59.8) 153. Lesotho (47.4) 151. Mali (73.8) 150. Afghanistan (78)

Income (mainly relative in rich countries), wealth Employment Job security Family status (not separated, divorced, widowed Good health – physical and mental Strong & secure families and communities Personal freedom, political voice, governance Quality of environment Religion Trust in others Income redistribution – greater equality (aggregate

effect)

• Education: literacy levels, school dropout and repetition rates• Health: infant mortality, low birth weight, weight/height/age

ratio• Nutrition: e.g., calories per day, protein/carbohydrates ratio, etc.• Basic services: telephones, water, sanitation, electrification, etc.• Shelter: housing availability/quality, etc.• Child development• Political participation and democratic process• Status of minorities, ethnic populations and women: e.g., human

rights data• Environmental pollution levels• Environmental resource depletion

Thank you