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Tutorial Week 4

Thursday, 15 August 2019

1-2 PM

Presentation Group
1. Putri Juliana Rahayu u7039821
2. Charity Kaifiti u6973832
Presentation Summary
Topic: GDP as a measure of well-being and its relationship with other measures of well-being

First introduced in the 1940s, GDP (Gross Domestic Product) has become the most used
tool to measure the size and health of a nation’s economy. In 2018, World Bank recorded 264
countries and economies using GDP to track their aggregate economic performance. GDP still
widely used today because it contains less judgement therefore makes the comparison process
between one economy to another easier.

However, many practitioners and scholars are starting to find the replacement for GDP to
measure their countries’ economic well-being due to the limitation GDP has. One of many reasons
behind it, is that because people often try to measure how welfare is improving using GDP, even
though GDP is not the right measurement tool for that circumstance. A rise in GDP is merely the
rise in products and services produced in one economy but this does not always mean the standard
of living of the people in that economy are better off. For example, when a natural disaster hits a
country, GDP will increase as the product of massive facility rebuilding. On the other hand, the
welfare of the people may actually be getting lower due to asset loss.

There are various indicators being used around the world as alternatives for GDP for more
exact measurement of the national indicators of welfare and well-being such as Gross National
Happiness (GNH) used in Bhutan and Genuine Progress Indicator (GPI) which is used in 17
countries. Gross National Hapinnes is a survey based index used in Bhutan to measure nine
domains such as psychological well being, standard of living, governance, health, education,
community vitality, cultural diversity, time use, and ecological diversity. Australia follow the same
path by publishing 26 indicators in Measures of Australia’s Progress (MAP) in 2002. Meanwhile,
GPI index is resulted by adjusting 25 components into GDP such as substracting negative effect of
income inequality and social cost such as unemployment or pollution and adding positive elements
such as benefit of household work or volunteer work.

The difference between MAP and GPI is MAP does not provide a single index that can be
compared from one economy to other economy while GPI provide an index that can be used for
comparison. Even though it is possible to compare one economy’s GPI index with another
economy, it is still hard since GPI index contains a lot of judgement which used in adjusting the
GDP. The adjusment all depends on the economy’s objectives. If one economy’s objective different
from the other that resulted in different priority in adjusting their GDP into GPI therefore it makes
the data users have to aware of the adjustment process of each GPI index before start comparing.