Gross domestic product

[12] The modern concept of GDP was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms).

[15] A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions.

These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances.

In the words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework.

This method measures GDP by adding incomes that firms pay households for factors of production they hire – wages for labour, interest for capital, rent for land and profits for entrepreneurship.

Total factor income is also sometimes expressed as: The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices.

"[21] Encyclopedia Britannica records an alternate way of measuring exports minus imports: notating it as the single variable NX.

The publication is normally referred to as SNA2008 to distinguish it from the previous edition published in 1993 (SNA93) or 1968 (called SNA68)[23] SNA2008 provides a set of rules and procedures for the measurement of national accounts.

[25][26] As a result, GDP per capita as a standard of living is a continued usage because most people have a fairly accurate idea of what it is and know it is tough to come up with quantitative measures for such constructs as happiness, quality of life, and well-being.

[25] From the perspective of environmental, social and governance (ESG) measures, GDP per capita trends can be influenced by factors such as gender parity and elements of regulatory quality.

The change in number of MSMEs (Micro, Small, and Medium Enterprises) in the Philippines from 2008 through 2021 would be an example of elements such as the per capita gross domestic product and unemployment rate having significant effect on a developing country with mixed economy.

[34][35] Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his second report to the U.S. Congress in 1937, in a section titled "Uses and Abuses of National Income Measurements":[13] The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria.

Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification.

In 1962, Kuznets stated:[36]Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run.

It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

[46] Some have pointed out that GDP did not adapt to sociotechnical changes to give a more accurate picture of the modern economy and does not encapsulate the value of new activities such as delivering price-free information and entertainment on social media.

[47] In 2017 Diane Coyle explained that GDP excludes much unpaid work, writing that "many people contribute free digital work such as writing open-source software that can substitute for marketed equivalents, and it clearly has great economic value despite a price of zero", which constitutes a common criticism "of the reliance on GDP as the measure of economic success" especially after the emergence of the digital economy.

A 2020 study found that "poor regions' GDP grows faster by attracting more polluting production after connection to China's expressway system.

[59] In 2020 scientists, as part of a World Scientists' Warning to Humanity-associated series, warned that worldwide growth in affluence in terms of GDP-metrics has increased resource use and pollutant emissions with affluent citizens of the world – in terms of e.g. resource-intensive consumption – being responsible for most negative environmental impacts and central to a transition to safer, sustainable conditions.

They summarised evidence, presented solution approaches and stated that far-reaching lifestyle changes need to complement technological advancements and that existing societies, economies and cultures incite consumption expansion and that the structural imperative for growth in competitive market economies inhibits societal change.

[60][61][62] Sarah Arnold, Senior Economist at the New Economics Foundation (NEF) stated that "GDP includes activities that are detrimental to our economy and society in the long term, such as deforestation, strip mining, overfishing and so on".

[67] In 2019 "agriculture and agribusiness" accounted for 24% of the GDP of Brazil, where a large share of annual net tropical forest loss occurred and is associated with sizable portions of this economic activity domain.

[68] Steve Cohen of the Earth Institute elucidated that while GDP does not distinguish between different activities (or lifestyles), "all consumption behaviors are not created equal and do not have the same impact on environmental sustainability".

[69] Johan Rockström, director of the Potsdam Institute for Climate Impact Research, noted that "it's difficult to see if the current G.D.P.-based model of economic growth can go hand-in-hand with rapid cutting of emissions", which nations have agreed to attempt under the Paris Agreement in order to mitigate real-world impacts of climate change.

[70] In 1989, John B. Cobb and Herman Daly introduced Index of Sustainable Economic Welfare (ISEW) by taking into account other factors such as consumption of nonrenewable resources and degradation of the environment.

In 2005, Med Jones, an American Economist, at the International Institute of Management, introduced the first secular Gross National Happiness Index a.k.a.

Gross National Well-being framework and Index to complement GDP economics with additional seven dimensions, including environment, education, and government, work, social and health (mental and physical) indicators.

[71][72][73] In 2019, Serge Pierre Besanger published a "GDP 3.0" proposal which combines an expanded GNI formula which he calls GNIX, with a Palma ratio and a set of environmental metrics based on the Daly Rule.

For example, South Africa during apartheid ranked high in terms of GDP per capita, but the benefits of this immense wealth and income were not shared equally among its citizens.

A peer-reviewed study published in the Journal of Political Economy in October 2022 found signs of manipulation of economic growth statistics in the majority of countries.