Gross Domestic Product (GDP) is the total market value of all goods and services produced in a country in a given year. It is equal to the total consumer, investment and government spending, plus the value of exports, minus the value of imports. The GDP report is released on the last day of each quarter and reflects the previous quarter. However, GDP is to a certain extent only useful as a measure of living standards when converted into US$ / the same currency to enable helpful comparisons to be made, divided per capita and then put in real terms. When answering this question it is important to define exactly what do we mean by living standards? According to freedictionary.com it is; ‘A level of material comfort as measured by the goods, services, and luxuries available to an individual, group, or nation.’ However on an alternative website, investorwords.com it is defined as; ‘The financial health of a population, as measured by the quantity of consumption by the members of that population.’ These definitions do not entirely match up, proving living standards is a hard term to define, it can be interpreted differently from person to person. During this essay the pros and cons of using GDP to measure living standards will be considered and there will be further commentary into how and what is meant by living standards.
When using the GDP as a measure of living standards we divide the GDP for the country by the number of people in the Country, and as a result we get GDP per captia. This means that the number given is simply an average, and it does not represent the wide spread of income across the country. It does not show regional variations. A perfect example of this is the north and south divide in the UK. According to BBC news, people living in the south are more likely to be better educated and earn more money than people in northern counties. It was also discovered that southerners have more doctors and dentists, which plays a key role in the standard of living. This proves that not only does GDP not cover all of what we mean when we talk about living standards, it shows that a country’s GDP or GDP per capita is not an entirely fair representation of how everyone in one country lives. A country GDP per capita may be high, but there could be a very large divide between the rich and poor throughout the country, there could be a rich minority and a poor majority, so it could potentially be misleading
A key way in which international comparisons have been undertaken is by comparing the GDP per capita, which is seen as a measure of average income in different countries. GDP covers material goods and services but may not capture other dimensions of the quality of life. It is fair to say that there is more to living standards than just GDP. This is where indicators such as HDI (Human Development Index) challenge the usefulness of GDP for measuring living standards. The HDI was designed to reflect three key components, firstly that people need resources, secondly people need the education to make good use of these resources, and thirdly that they need good health in order to live longer life. The three indicators that were chosen to show these three factors were GDP, adult literacy, and life expectancy at birth. The GDP can often be a misleading picture of standard of living as it does not show low levels of health and education. This is why the multi dimensional HDI is often deemed to be a more appropriate indicator for comparing living standards across countries. South Africa is a good example of this. The country has a fairly average income, but has low levels of health and education. There is high incidence of HIV/AIDS, which adversely affects life expectancy; highlighting HDI is a more helpful depiction of living standards.
As discussed previously GDP can be a...