Use of GDP as a Sign of Living Standards

The economic standards of living within a country can me measured and analysed by using economic indicators.  These indicators are education, health, national income and population and selected indicators.  By evaluating each one of these factors we can determine the levels of living standards throughout these five countries; China, Kenya, the Russian Federation, the United Kingdom and the United States of America.

GDP per capita is often used as an indicator of standard of living in an economy, the rationale being that all citizens would benefit from their country’s increased economic production.

The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently; frequently in that most countries provide information on GDP on a quarterly basis (which allows a user to spot trends more quickly), widely in that some measure of GDP is available for practically every country in the world.

The major disadvantage of using GDP as an indicator of standard of living is that it is not, strictly speaking, a measure of standard of living. GDP is intended to be a measure of particular types of economic activity within a country. Nothing about the definition of GDP suggests that it is necessarily a measure of standard of living. For instance, in an extreme example, a country which exported 100 per cent of its production and imported nothing would still have a high GDP, but a very poor standard of living.

The argument in favour of using GDP is not that it is a good indicator of standard of living, but rather that (all other things being equal) standard of living tends to increase when GDP per capita increases. This makes GDP a proxy for standard of living, rather than a direct measure of it.

But there are other more effective standard of living indicators. 

The education of a country is of vital importance.  If there is a low literacy and numeracy level then future generations of the country will be unable to get good jobs and feed their families.  The level of illiteracy for people aged 15 and older in Kenya is 26%.  This is a very large percentage of people that are effectively excluded from earning a reasonable salary.  Having uneducated people within a country is not only trouble for their family, it creates problems for the government as not a large enough proportion of people are earning enough to tax.  With low levels of pay, then a government cannot raise the funds to emplace schemes to tackle the initial problem therefore making and everlasting problem.