Several commentators (e.g., [1] [2]) Continue to let me take on the task of quoting GDP as if it were the final variable of interest. I have repeatedly pointed out that GDP is an indicator of economic activity, not an indicator of economic welfare. However, in order to prevent these repetitive and sometimes sentenced comments, I will provide some diagrams to illustrate the difference between measures of economic activity and measures of welfare.
First, I drew graphs of real GDP per capita and Human Development Index for three countries: the United States, China, and Norway (HDI ranked highest in 2019).
figure 1: The real GDP per U.S. is calculated using PPP Chained 2017 USD (blue, left scale) and the United States’ Human Development Index (red square). source: Penn World Tables 10.0, with UNDP.
figure 2: China’s real GDP per capita is based on PPP chain 2017 USD (blue, left scale) and China’s human development index (red square). source: Penn World Tables 10.0, with UNDP.
image 3: Norway’s real GDP per capita is represented by PPP Chained 2017 USD (blue, left scale) and Norway’s Human Development Index (red square). source: Penn World Tables 10.0, with UNDP.
The Human Development Index is briefly described as follows (2020 Technical Notes):
The Human Development Index (HDI) is a summary measure of achievements in three key aspects of human development: health and longevity, access to knowledge, and a decent standard of living. HDI is the geometric mean of the normalized index of each of the three dimensions.
Graphical:
source: UNDP (2020).
Please note that GNI per capita (usually similar in number to GDP) is a component of HDI.
Obviously, these two series are not exactly the same (as far as we can judge with these data). However, real GDP per capita and HDI both show a common trend. A naive regression of HDI on the logarithm of the per capita GDP of the United States and China yields a coefficient of approximately 0.15.
Figure 4: Real GDP per U.S. in PPP Chained 2017 USD (blue), China (red) and Norway (green). source: Penn World Tables 10.0.
Figure 5: The United States Human Development Index (blue square), China (red square), and Norway (green square). source: UNDP.
So, now people know-a broader measure of economic welfare is usually a common trend, but there must be a deviation from the other; per capita GDP (even in terms of purchasing power parity) and cross-country comparisons of economic welfare are ranked Aspects may be different.
I will not assert that HDI is the best indicator; I use it only because it is easily available and has been around for a long time.As HDI Technical Description The layout, there are other versions, can explain income inequality and gender inequality, or focus on poverty.
There are countless papers on alternative methods of measuring economic welfare.I will not try to cite most of them, but recommend the reader to the nearest one Review (International Monetary Fund, 2020) [link corrected 1pm]. See also this review article by Dale Jorgensen, “Production and Welfare: Progress in Econometrics” (JEL, 2018).
