Dr Victor Adoji, an Economist, Strategic Global Communication Expert, Governance Strategist and Impact Reinvestment Consultant, in this piece, obtained from his Facebook wall, reflects on the history of GDP and its relevance in contemporary economic measurement
For over half a century now, there is arguably no other statistical and economic construct that has had a greater influence on the modern economy and the measurement of economic progress than the Gross Domestic Product (GDP).
Changes in GDP has become the most widely accepted measure of a country’s economic progress. Gross Domestic Product plays a central role in judging the position of the economy of a country over time or relative to that of other countries. Conceptually, GDP is the market value of all the finished goods and services produced within a geographic area (usually a country) in a given period (say a quarter or a year). GDP is composed of goods and services produced for sale and includes some nonmarket production, such as defense or education services provided by the government. GDP essentially summarizes total economic activity in a country.
Since its introduction in the aftermath of World War II and the Great Depression by Simon Kuznets, a Russian-American Nobel laureate, economist and statistician, the Gross Domestic Product has become the ultimate measure of a country’s overall welfare, a window into an economy’s soul, the statistic to end all statistics. Its use spread rapidly, becoming the defining indicator of the last century. The use of GDP globally as a measure of economic progress was further strengthened following its endorsement by the Bretton Woods Conference upon which the metric became a powerful tool in global politics, economic relevance, and diplomacy. This is so because the most important global governance institutions, from the G8 to the G20, are all based essentially on GDP credentials.
After over eighty years of usage and popularity, there is an apparent and raging discontent with the Nobel-winning metric as a good measure of economic growth and development. In fact, there are myriad of criticisms against the GDP, some of which are from respected economists including Kuznets (1941), Galbraith (1958), Samuelson (1961), Mishan (1967), Nordhaus and Tobin (1972), Hueting (1974), Hirsch (1976), Sen (1976), Scitovsky (1976), Daly (1977), Hartwick (1990), Tinbergen and Hueting (1992), Weitzman and Löfgren (1997), Dasgupta and Mäler (2000), Dasgupta (2001), Layard (2005), and Fleurbaey (2009).
It is instructive and interesting to note that the first critic of GDP as a measure of economic progress was Simon Kuznets – the developer of the GDP concept – who cautioned against equating GDP growth with economic or social well-being. According to him, the welfare of a nation can scarcely be inferred from a measurement of national income. Kuznets’s caveat notwithstanding, the Gross Domestic Product became an obsession for politicians and policy makers and a dominant mantra of policy making. Politicians, economists, business people, and policy makers have been fascinated and enamored by GDP numbers which has become the sine qua non for economic progress¬ – something it does not measure and was never intended to measure.
The debate on the limitations of GDP as a tool for measuring economic progress has never abated. The argument has always been whether GDP captures other important dimensions of development such as social and environmental as enunciated in the United Nations three pillars of post-2015 Sustainable Development Goals (SDGs).
NIGERIA AND HER GDP
Following the rebasing of its Gross Domestic product (GDP) in 2014, the Nigerian became the 26th largest in world, officially becoming Africa’s largest economy. This singular feat especially the leap frogging South Africa and knocking her off the decades-long perch as the continent’s largest economy caught the attention of the world, eliciting myriad interests, analyses, and commentaries and, for many reasons, rightly so. In fact, no economic development in recent times has provoked media blitz across the globe, and within the country like the outcome of Nigeria’s GDP rebasing. Some are curious on the sort of economic miracle that has happened to suddenly leapfrog the Nigerian economy to its new status. The foregoing debate has brought to the fore the significance of GDP as a measure of economic well-being and progress.
In the end, a question begs for attention: Is the Gross Domestic Product (GDP) an adequate measure of Nigeria’s (or any country for that matter) development and progress across many dimensions?
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