GDP, growth and development are often misunderstood terms for those who don’t have knowledge on Economics. Authority of a state is seen to manipulate these terms to gain public support and ensure stronghold in power though the reality is that these terms do not always reflect general health of an economy.
GDP is the dollar value of all final goods and services produced in an economy with in a particular period of time. There are two forms of GDP; nominal GDP and real GDP. We can’t draw any conclusion about actual growth and development from nominal GDP. Nominal GDP is evaluated at the current price level; so therefore if price increases but production remains the same as previous year, GDP will increase. On the other hand real GDP takes into account total output produced in an economy within a particular period of time. There are three ways to calculate GDP; income method, expenditure method and value added method. Value added method isn’t so popular; therefore government chooses from income and expenditure method which suits best for them.
Growth is measured by the percentage change in GDP from one year to another. It is commonly assumed that if the growth rate is positive, an economy is developing. But the truth is size of GDP and percentage change in GDP which is known as growth rate, can hardly give any unambiguous statement about economic development.
Another important tool that is generally used to infer about living standard is per capita GDP which is measured by dividing GDP by the population of a country. Our commonly held belief is higher the per capita GDP, higher the living standard. But this is not true either as per capita GDP may hide the serious income inequality and wealth concentration to a few.
GDP, per capita GDP and Growth rate are all essential part of a country’s budget report. People hardly can understand the manipulation of these indicators without having proper knowledge and consciousness, therefore sometimes get befooled by governments’ shrewd economic policy. As an active citizen we should find the answer of some questions to be confirmed about a country’s actual development scenario.
This isn’t much to say all these indicators are proved to be flawed in depicting how an economy is really doing. GDP is a gross measure of total output. It doesn’t distinguish between productive and destructive activities. Proliferation of handguns, nuclear material, increasing fast food consumption, unsustainable credit card debt, stock market bubbles, depletion of natural resources etc “contribute” to a higher GDP. Besides, there exists an informal sector known as hidden economy which remains out of the calculation of GDP. So growth rate doesn’t necessarily determine economic development and quality of human life but it can be termed as a single factor of development.
Historically GDP was developed during the great depression in USA and became an official instrument of US economic policy in 1946 after its success as a utility during the war. Initially it was developed to measure market activity but now it has become indicator for economic development and human welfare. Simon Kuznets who is the creator of GDP, actually warned government about the limitation of this indicator but sadly his concerns were unheeded.
When we draw conclusion about development from growth rate of GDP, we really need to know how the growth rate has been achieved and whether this kind of development is sustainable or not. It is normally seen in developing countries that government puts a lot emphasis on visible infrastructure instead of social infrastructure in order to swelling up their popularity. Social infrastructure like education, research and development and different training programs improve quality of life. If growth rate is achieved ignoring building up these social infrastructure, it will hardly improve quality of life and the development will not be sustainable in future.
However, wide criticism has led to develop new method of portraying economic development, human welfare and quality of life which is known as HDI. HDI stands for Human Development Index and it has become a global standard for comparing development among different countries which was invented by the Indian economist Amartya Sen and Pakistani economist Mahbu ul Haque. HDI is the composite statistic of purchasing power parity adjusted per capita GNI, life expectancy and education.
Despite having massive popularity, HDI method also face some criticism. Most importantly HDI takes into account variables which reflect long term changes and it does not reflect on inequalities, poverty, human security, empowerment, etc. Having this basic understanding we can look at the GDP statistics with a critical approach.
Currently the economy of Bangladesh is the 44th largest in terms of nominal GDP. In the year 2016 Bangladesh has achieved an outstanding growth rate of 7.1%; therefore IMF has regarded it as the 2nd fastest growing major economy in the world. This is obviously a great achievement for Bangladesh. Readymade garments sector, remittance and agricultural sector are mainly contributing to this excellent growth rate. But the performance in Human Development Index isn’t fitting at all. According to HDI report in 2015 Bangladesh ranked 142 among 188 countries and it falls into the category of developing country. Although the rank is unchanged, Bangladesh is improving in HDI marking; but still it has much to do as some other countries inflicted with war and serious instability have secured better position than Bangladesh. We can cite several examples; according to HDI report 2015 rank of Palestine, Iraq, Syria is consequently 113, 121 and 134.
Although Bangladesh has achieved remarkable growth rate earning the status of being categorized among 11 emerging market economies, it has really lot more to do to improve quality of life and to ensure that the growth rate is sustainable in future. In order to meeting the sustainable development goals, sufficient amount of investment in Education is highly needed. It is assumed that if a country wants to offer quality education to its’ people, it will have to allocate minimum 8-10 percent of GDP in education but unfortunately in case of Bangladesh it is only 2.4 percent. We can follow the example of other developed countries that prioritized on education and achieved tremendous success in improving living standard.
Md Nahidujjaman is undergraduate student of Economics at the University of Dhaka.