DOES GNP MEAN GROSS NATIONAL PROBLEMS?Avecilla, JulienneChong, Annie MichelleECOMAN

GROSS NATIONAL PRODUCT (GNP) Now referred to as Gross National Income (GNI) Most dominant concern in adopting national

development plans, rationalizing development programs, evaluating success of development projects, and providing development assistance by international agencies

Used to determine a country’s economic status and rank globally

The measure of GNP is globally accepted as the indicator of human progress, level of civilization, sign of well-being, yardstick of economic success, and basis of policy debate (Bjonnes, 2002; Cobb, Halstead, and Rowe, 1995; Cobb, Goodman and Wackernagel, 1999)

LIMITATIONS OF GNP Fails to consider:

Crime Rate Leisure Time Nonmarket and Domestic Activities Social Ills Distribution of output among individuals in

society

CASE BACKGROUND The case discusses different arguments on

why GNP, as a measure of economic growth, is considered inaccurate. Cited in the case are the following arguments: The Role of Women Public Sector vs Private Sector Military Expenditure Exploitation of Irreplaceable Resources Environmental Considerations

Remember: Gross National Product (GNP) is the measure of the output produced by factors of production owned by a country’s citizens regardless of where the output is produced.

PROBLEM STATEMENT Given the limitations of GNP as a

measure of economic growth, what other measures can be used to measure a country’s economic growth?

UNDERLYING ISSUES/ARGUMENTS Role of women

Increased participation of women in the workforce has increased output in the private and public sectors of the economy and to that extent has increased the estimated growth in the real GNP and in per capital real income.

The services that women now provide for industry and commerce continue to add to the value of GNP, the concomitant reduction of services they would otherwise have provided in their homes.

GNP becomes UNDERSTATED

LABOR FORCE PARTICIPATION RATE (WOMEN)

Labor force participation rate is the proportion of the population ages 15 and older that is economically active: all people who supply labor for the production of goods and services during a specified period.

UNDERLYING ISSUES Public sector versus private sector

Second, since public goods tend to be overvalued as compared with those produced by the private sector, and since the output of the public sector over the last thirty years has grown appreciably as a component of GNP, it follows that the real growth of GNP over the period will be overestimated.

UNDERLYING ISSUES

Public sector versus private sector Public goods tend to be overvalued as compared

with those produced by the private sector The valuation of products and services provided by the

public sector creates additional misgivings due to corruption

The Philippine government, in its efforts to curb corruption created the GPPB (Government Procurement Policy Board)

UNDERLYING ISSUES

Private sector output is measured by the PRICE people are prepared to pay for it. Public Sector output is measured by its COST.

UNDERLYING ISSUES

Military Expenditure Military expenditure is one of the largest items in

public expenditure

Should proper economic accounting include it as a component of per capita income? Nation chose to use part of its resources on defense

rather on other goods

UNDERLYING ISSUES 10 countries spending the most on the

military - 2013 (ascending order) Brazil - $36.2 billion India - $49.1 billion Germany - $49.3 billion United Kingdom - $56.2 billion Japan - $59.4 billion France - $62.3 billion Saudi Arabia - $62.8 billion Russia - $84.9 billion China - $171.4 billion United States - $618.7 billion

UNDERLYING ISSUES

Military Expenditure Economic orders have been established and

maintained with aid of military force. However, it fails to directly raise individual

welfare. So while military spending helps flourish the economy of a country because it allow other economic activities to progress (security), they are not valued for their own sake.

Meaning that an increase in GNP because of military expenditures that does not mean that a nation is consuming and investing more.

Opportunity cost of expensive military spending

UNDERLYING ISSUES

Exploitation of Irreplaceable Resources The usage of natural resources is added to GNP

however, the depletion of natural resources is not being accounted for

The catastrophic costs of growth-related products and activities are always overlooked in GNP assessment

UNDERLYING ISSUES

Environmental Considerations Modern industry and its products pollute air, soil

and water and generally degrade the environment If nothing is done to curb industrial overspill, GNP is

overstated to the extent of the damage that is borne

Modern cultivation = ECONOMIC GAINS and BOOST IN GNP

Modern cultivation = leads to land degredation which declines rate of land productivity

Ex. Land reclamation to create roads, malls (MOA) and integrated resorts (Entertainment City)

ANSWERS TO QUESTIONS FOR ANALYTICAL THINKING: (ANNIE PA-HELP D2) These statements imply a need for recording

minuses as well as pluses to national accounts. What do you think should be taken off national accounts to arrive at a real measure of progress? For mineral reserves, the value of mineral

reserves less depletion should be recorded Environmental costs should be deducted from

actual production of manufacturing companies

ANSWERS TO QUESTIONS FOR ANALYTICAL THINKING: Professors Tobin and Nordhaus in a similar

article in an American publication argue that there is also a need for adding activities that are not traditionally included in GNP figures. List the kind of things you think they may have in mind. Value of Leisure Time Value of Unpaid Work Deduct Value of Environmental Damage

ANSWERS TO QUESTIONS FOR ANALYTICAL THINKING: In the mid-1970s the Economic Development

Council of Washington, DC created an entirely new measure of wealth and health, namely the PQLI. The Physical Quality of Life Index bases its terms of reference on figures for life expectancy, literacy, and infant mortality. From these figures countries are rate on a scale of 1 to 100. Critically evaluate this index as a measure of welfare.

ANSWERS TO QUESTIONS FOR ANALYTICAL THINKING:Physical Quality of Life Index- Includes 3 indicators

- Life expectancy- Infant mortality rate- Literacy rate

- Uses a scale of 1 to 100

- Relates fruits of economic growth with human betterment

- Analyzes nature of distribution of income

- Does not include social/psychological properties e.g. security, justice & human rights

- Need to normalize the indicators- Life expectancy - measured in terms of years- Infant mortality rate - in terms of per thousand- Basic literacy rate - in terms of percentage.

Rank Country Quality of Life Index31 Slovakia 108.7432 Croatia 108.733 Poland 95.1934 Uruguay 91.9435 Israel 91.1636 Italy 90.6137 Malaysia 89.0538 Singapore 87.9939 Mexico 83.4740 Hungary 83.1841 Argentina 81.1242 India 78.0143 Greece 77.4844 Bosnia And

Herzegovina 74.645 Belarus 74.4346 Hong Kong 73.2447 Chile 69.3248 Serbia 69.3149 Turkey 67.8250 Romania 63.2751 Bulgaria 62.652 Thailand 56.6453 Ecuador 42.2554 Kazakhstan 40.6455 Jordan 39.5456 Brazil 38.7657 Colombia 36.5358 China 30.359 Philippines 28.0960 Pakistan 22.32

Rank Country Quality of Life Index1 Switzerland 206.232 United States 195.553 Germany 192.694 Sweden 180.925 Finland 178.886 Denmark 178.557 Canada 178.298 Australia 175.989 United Arab

Emirates 173.2710 Austria 171.8211 New Zealand 168.5612 Japan 168.4713 Norway 168.4114 Netherlands 160.9815 United Kingdom 150.9716 Estonia 145.417 Ireland 142.3518 Kuwait 141.3719 Saudi Arabia 139.8820 France 136.3121 Belgium 134.7122 Slovenia 125.5623 Portugal 124.7124 Puerto Rico 123.6425 Spain 123.6426 Czech Republic 122.9927 Lithuania 121.9128 South Korea 117.929 Taiwan 114.0630 South Africa 111.61

PQLI - Philippines is ranked # 59 out of 68 in the world in 2014

THE TOP 3 COUNTRIES IN TERMS OF PQLI VS THE PHILIPPINES Switzerland vs Philippines

USA vs Philippines

Germany vs Philippines

ANSWERS TO QUESTIONS FOR ANALYTICAL THINKING: Suggest what you would like as a measure of

welfare. Measure of Economic Welfare (Nordhaus and

Tobin)

Index of Sustainable Economic Welfare

TRENDS AND PATTERS OF THE PHILIPPINE ECONOMY

TRENDS IN PHILIPPINE ECONOMY The economy grew 6.9% year-on-year in Q4

2014, bringing full year GDP growth to 6.1%.

REFERENCES Case, K., Fair, R., & Oster, S. (2012). Principles

of Economics (10th ed.). Upper Saddle River, N.J.: Prentice Hall.

Mishan, E. (1986). Economic myths and the mythology of economics. Atlantic Highlands, NJ: Humanities Press International.

Haque, M. (n.d.). The Myths of Economic Growth (GNP): Implications for Human Development. Handbook of Development Policy Studies, 1-24. Retrieved from http://profile.nus.edu.sg/fass/polhaque/gnp-myth.pdf

http://www.numbeo.com/quality-of-life/

https://zielonygrzyb.wordpress.com/2012/07/31/limitations-of-gdp-as-welfare-indicator/

http://www.worldbank.org/depweb/beyond/global/chapter2.html

http://www.nytimes.com/1991/04/05/weekinreview/ideas-trends-if-the-gnp-counted-housework-would-women-count-for-more.html