Economic Growth and GDP
Definition
Economic growth
Economic growth refers to the increase in the total market value of goods and services produced in a country over time.
It is typically measured as the annual percentage change in Gross Domestic Product (GDP).
Definition
Gross domestic product
Gross domestic product (GDP) is a monetary measure of all final goods and services produced within a country in a given time period (usually a year).
Used to assess the economic performance of a country.
Per Capita GDP
- GDP per capita = Total GDP รท Population.
- Provides a better indicator of average living standards than total GDP.
- However, it does not reflect income inequality or wealth distribution.
Limitations of GDP as a Measure of Economic Well-being
- Does not measure income inequality: A high GDP does not mean wealth is fairly distributed.
- Ignores environmental degradation: Economic growth may come at the cost of pollution and resource depletion.
- Excludes non-market activities: Unpaid work (e.g., caregiving, volunteer work) is not included.
- Does not account for quality of life: GDP does not measure health, education, or happiness.
Alternatives to GDP
- Human Development Index (HDI): Measures life expectancy, education, and per capita income, providing a broader view of well-being.
- Genuine Progress Indicator (GPI): Adjusts GDP by accounting for environmental degradation, income inequality, and non-market activities (e.g., household labor).
- Gross National Happiness (GNH): Used in Bhutan, incorporates psychological well-being, culture, and environmental sustainability.
- Ecological Footprint: Measures the environmental impact of economic activities and whether consumption exceeds Earth's regenerative capacity.
Economic Growth and Its Environmental Impacts
- Economic growth is often seen as a measure of prosperity, but it also has significant environmental implications.
- To understand this, let's explore how growth is driven by supply and demand, why it's considered a linear model, and how it often overlooks critical environmental factors.
How Supply and Demand Drive Economic Growth
- Supply and Demand: The foundation of economic growth lies in the interaction between supply (production of goods and services) and demand (consumer willingness to purchase them).
- Increased Production: When demand rises, businesses produce more, leading to higher economic output.
- Investment and Innovation: Growth encourages investment in technology and infrastructure, boosting productivity.
- Consumer Spending: Higher incomes lead to increased spending, further driving demand.
GDP does not account for income inequality or environmental degradation, which can skew perceptions of prosperity.
The Linear Economy: A Flawed Model
- Resource Extraction: Natural resources are extracted to produce goods.
- Production and Consumption: Goods are manufactured, sold, and consumed.
- Waste Generation: Products are discarded, leading to pollution and environmental degradation.
The Environmental Impacts of Economic Growth
Negative Impacts
- Resource Depletion: Overconsumption of non-renewable resources like fossil fuels and minerals.
- Pollution: Industrial activities release greenhouse gases, contributing to climate change.
- Habitat Loss: Urbanization and deforestation destroy ecosystems and threaten biodiversity.
The Amazon rainforest, often called the lungs of the Earth, is being cleared for agriculture and logging. This not only reduces biodiversity but also accelerates climate change by releasing stored carbon.
Positive Impacts
- Investment in Green Technology: Economic growth can fund renewable energy, pollution control, and conservation efforts.
- Higher Environmental Awareness: Wealthier societies often prioritize environmental protection and sustainable practices.
Countries like Sweden and Denmark have invested heavily in renewable energy, reducing their carbon footprints while maintaining strong economies.
Can Economic Growth Be Sustainable?
- Eco-Economic Decoupling: This concept involves separating economic growth from environmental degradation.
- Circular Economy: Unlike the linear model, the circular economy focuses on reducing waste by reusing, recycling, and regenerating resources.
- Doughnut Economics: This model balances economic activity within a safe and just space for humanity, ensuring that growth does not exceed ecological limits.
Economic Growth and Environmental Welfare
- Economic growth is often viewed as a key indicator of prosperity. However, the relationship between economic growth and environmental welfare is complex.
