Gross Domestic Product Case Study

Gross Domestic Product(GDP) is an aggregation of productivity within the geographic boundaries of a country (Chang, 2014). GDP growth set out to measure increases in productivity hence evaluating the contraction or expansion of economies. It was a great invention aiding in quantifying the economy and an instrument of comparison of countries. GDP in the past and recent times has blindly been expanded as a proxy for economic development which it never in its creation meant to measure. This paper uses Mauritius and Ethiopia as case studies to highlight pitfalls of GDP as an indicator for economic development exploring issues of welfare, inequality, environmental sustainability and informal sector neglect.

Economic development is growth based

The idea of Ethiopia rising due to skyrocketing GDP growth raises questions. Is Ethiopia rising for Ethiopians or for multinationals and foreigners in Ethiopia? Though growth increases, the ownership of assets of production are most likely in the hands of foreign firms rather than indigenous Ethiopians which likely results in capital flights. High growth is propelled by increasing foreign investment in Ethiopia. In 2005 with GDP growth of 11.819%, Ethiopia records $14.79 billion in net foreign assets whilst Mauritius records $145.835 billion with a growth of 1.241% (The World Bank, 2016). The failure of GDP to reveal the distribution of wealth in terms of asset ownership makes it an insufficient measure of equality hence economic

GDP growth shows little about the impact of production on the environment and its consequences on living standards. Is our economy, with its mixture of market processes and governmental controls, biased in favour of wasteful and short-sighed exploitation of natural resources? (Nordhaus & Tobin, 1972) Evidence from the World bank’s PM2.5 air pollution indicator shows that over 94% of Ethiopia’s population are exposed to air pollution since 2000 and an increasing trend is realized in subsequent years. Mauritius, on the other hand, records a low rate 0.97% in 2000 which rises to 26.6% in 2013. Calculation of GDP are unlikely to satisfy critics who believe that economic growth per se piles up immense social cost ignored in even the most careful national income calculations (Nordhaus & Tobin, 1972). Though GDP is growing, it excludes its impact on the environment. What then is the importance of growth if it destroys the sustenance of