The Genuine Progress Indicator (GPI) is an attempt to measure the real increase in economic welfare.
The GPI measures the improvement in economic welfare – costs associated with growth.
The GPI takes a wider measure of economic indicators into consideration. For example, GPI includes
- value of voluntary work and unpaid work.
- value of leisure time
- Distribution of income
- Impact on environment
- Environmental standards
- Cost of crime
See list at bottom for more details.
Advantages of Using GPI
- GDP doesn’t take into account negative externalities of growth. Higher GDP may lead to a large rise in pollution, crime and congestion leaving people with lower economic welfare and lower levels of happiness. Therefore, GDP can be misleading as an account of economic welfare.
- By focusing on a wider measure of economic indicators, it encourages policy makers to think in broader terms of economic welfare and not just crude GDP statistics.
- GDP only measures output – not how it actually effects people’s living standards and how it is used in society.
- Encourages long term planning. i.e. sustainable growth rather than short term measures which increase GDP at expense of damaging environment.
Disadvantages of Using GPI
- Many non-economic variables such as value of leisure time / environment are very subjective and it can be difficult to assign an economic value. GDP is simpler and gives less normative results.
- Not useful for judging state of business cycle.
Rather than GDP v GPI, it is useful to use both and see them as complementary indexes. GDP will always have a use for economic accounting. However, it clearly has limitations. Using an additional measure such as GPI helps to give a better understanding of real economic development.
What is included in GPI?
Nova Scotia GPI Components
• Value of Civic and Voluntary Work
• Value of Unpaid Housework and Child Care
• Value of Leisure Time
• Paid Work Hours
• Income and its Distribution
• Financial Security – Debt and Assets
• Economic Security Index
• Soils & Agriculture
• Fisheries and Marine Resources
Human Impact on the Environment
• Solid Waste
• Ecological Footprint
• Greenhouse Gas Emissions
Human and Social Capital
• Population Health
• Costs of Crime
• Educational Attainment