Use of GDP as a Sign of Living Standards

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.

The Russian Federation, a country which was bankrupted in the 1980’s during the cold war had huge financial difficulties however it managed to reduce its illiteracy down to only 1% through borrowing loans.

National income is an indicator of standard of living because it shows how wealthy a country is, which in turn can show the affluence of its people.  The USA’s gross national income is $12,969.6 million compared to the $18 million of Kenya.  This vast difference shows that the standards of education in each country, the level of unemployment and the size of country are all very different.  The population of the USA is at 296 million and the population of Kenya is at 34 million.

There are many health indicators in a country to show living standards; a few of these are life expectancy, access to safe water, under-five mortality rate, prevalence of child malnutrition and access to sanitation faculties. The two former listed, in the UK the life expectancy is 78.9 and 100% of the population has access to safe water.  In China the life expectancy is 70.3 and 78.9% of the population has access to safe water.  This shows that both China and the UK have excellent healthcare systems.  The availability of safe water in the UK is clearly superb however compared to the immense population of China’s 1,305 million people they are also doing a great job in supplying so many people with clean water.

There are some individual or ‘selected’ indicators that give us an idea of how good living conditions are within a country.  These are factors that determine everyday life and are a direct link to affluence.  The UK has 100% of its roads paved compared to 12.1% of Kenyan roads.  The Russian Federation uses 5,208.8 kwh of electricity compared to China’s 992.7 kwh’s.  These amenities make everyday life easier for people however throughout the world there is a massive difference in what people have to live with.

To conclude it is clear from the evidence presented that the more economically developed countries (MEDC’s) like the UK and the USA have better all round standards of living then those people living in a less economically developed country (LEDC) like Kenya