Case Study:
GDP vs. GNP
Gross domestic product (GDP) and Gross national product (GNP) are two economic terms that are, in ways, intertwined. While GDP deals with a country's overall production of goods and services, GNP deals with the total value of those goods and services. However, it is good to note that GNP does not cover all goods and services, which have been manufactured through non-domestic resources and labor even if their manufacture is from within a country's boundary. Similarly, GDP covers all products and services, whose manufacture is under the aid of a country's domestic resources even if the production takes place overseas. Of particular interest is to understand, which of the two terms qualifies to be an effective measure of social well being. In essence, is a country considered to be wealthy or economically stable when goods and services are in abundance or whether a measure of the value of those goods and services better presents one with a more certain economic standing of a nation.
Explanation of key term
Rathod and Varalakshmi (n.d.) focus their attention on GDP and GNP as indicators of economic progress. From a more analytical point of view, GDP is described as the estimate of a market throughput, which is in consideration of "all final goods and services that are produced and traded for money within a given period of time" (Rathod & Varaklashmi, n.d., p.50). On the other hand, GNP takes a cumulative approach towards all goods and services produced whether within or outside a country's border. In this respect, GNP compiles the value of all products and services a country produces regardless of geographical barriers. In order to assess the role that GDP and GNP play in determining or projecting a country's economic standing, there is need to consider, for instance, a country's access to requisite resources to manufacture goods and services. If production occurs overseas, it is highly recommendable to be aware of the cost of employing domestic resources in foreign territory compared to carrying out production out domestically. On the other hand, GNP mainly deals with measuring value; in this regard, it is important to consider what is included or excluded in total value calculation. The aim is to identify any limitations, which may undermine either term as an effective measure or indicator of a company's economic growth.
Major Article Summary
The article tries to demonstrate how using GDP and GNP as indicators of economic progress. Paying particular attention on the aspect of fostering economic growth while at the same time achieving sustainability. In order to demonstrate this, Rathod and Varalakshmi (n.d.) present their readers with a succinct review of the various implications of both GDP and GNP. From their assessment, regarding GDP as being a measure of everything else, but does not consider things that elevate social standards of living. As an example, increasing the production of electricity would promote sufficiency when it comes to energy requirement; however, this means that the amount of revenue collected in form of electricity bill increases. Although that is good for a nation's financial standing, it does not equate to a better life for the common citizen. Thus, the article presents, in part, the limitation of GDP as an indicator on its own.
On the other hand, while GNP takes note of all products and services produced at a certain particular time, it does not consider used goods such as cars or even existing houses. Importantly, the final value of goods and services is what is considered; the aim is to avoid double counting, which can undermine the validity and credibility of the total value computed. For instance, in chain production, the original source of a product and its cost of production are not considered; the price at which the product is sold to a consumer is what is counted. Placing emphasis on the coverage and limitation of GDP as well as on the advantage that GNP has since it covers value of goods and services produced abroad. Conclusively, the article dismisses GDP as an effective indicator of economic growth on its own. A proposed combination of both GDP and GNP is a more stable measure or indicator of a country's economic standing.
Discussion
Notably, both GDP and GNP have their limitations when it comes to measuring a country's economic standing. Costanza et al. (2009) noted that strict measures should be taken when using GDP as an indicator of economic progress; it is better of used as a tool rather than as an indicator of general well-being. As has been mentioned above, GDP does not measure the quality of life, which is highly demonstrative of a country's economic progress. For instance, when a country experiences high standards of living, this automatically means that substantial revenue generate, which in turn leads to sustainability. However, anything to do with value is under GNP and not GDP. Therefore, this analysis further disapproves of the credibility of GDP alone being an indicator or measure of a country's economic growth. There are numerous limitations that hinder its effectiveness, for instance, lack of focus on quality of life and instead on level of production of goods and services. Be mindful that production incurs costs; it is hard to generate revenue without first knowing the value of all goods and services produced.
Focusing on the effectiveness of GNP as an indicator of economic progress, England and Harris (n.d.) noted that both GDP and GNP fail to consider some of the social as well as environmental factors, which influence production of goods and services. The assumption is that lack of considering, for instance, intermediate factors of production somewhat undermines total calculation of products and services manufactured at a certain time. A report by Van de Bergh and Antal (2014) also disregards GDP as a stable measure or indicator of economy progress especially when it comes to social well-being. They support that GDP has limitations especially in regards to promoting worthwhile living for citizens. In support, Landefeld, Seskin and Fraumeni (2008) also noted that there is lack of adequate information covering the service sector. In this regard, such kind of oversight undermines overall figures noting down products and services manufactured at a given time. This leads to the conclusion that both GDP and GNP are significant factors as pertains to assessment of economic progress.
References
England, R. W., & Harris, J. M. (n.d.). Alternatives to gross national product: A Critical Survey [Scholarly project]. Retrieved from
https://ase.tufts.edu/gdae/publications/archives/englandpaper.pdf
Constanza R., Hart M., Posner. S., & Talberth. J. (2009). Beyond GDP: The Need for New Measures of Progress. 4. Retrieved from
https://www.bu.edu/pardee/files/documents/PP-004-GDP.pdf.
Landefeld, J. S., Seskin, E. P., & Fraumeni, B. M. (2008). Taking the Pulse of the Economy: Measuring GDP. Journal of Economic
Perspectives, 22(2), 193-216. Retrieved from
https://www.bea.gov/about/pdf/jep_spring2008.pdf
Rathod. B., & Varalakshmi. T. (n.d.). GDP & GNP as an indicator of economic progress. 50-59.
Van de Bergh, J., & Antal. M. (2014). Evaluating Alternatives to GDP as Measures of Social Welfare/Progress (Working paper No. 56).
Retrieved from https://www.foreurope.eu/fileadmin/documents/pdf/Workingpapers/WWWforEurope_WPS_no056_MS211.pdf