GDP does not include several factors that influence the standard of living. In particular, it fails to account for: •
Externalities – Economic growth may entail an increase in negative externalities that are not directly measured in GDP. •
Non-market transactions – GDP excludes activities that are not provided through the market, such as household production, bartering of goods and services, and volunteer or unpaid services. •
Non-monetary economy – GDP omits economies where no money comes into play at all, resulting in inaccurate or abnormally low GDP figures. For example, in countries with major business transactions occurring informally, portions of local economy are not easily registered.
Bartering may be more prominent than the use of money, even extending to services. In other words GDP does not account for the fact that there was destruction in the first place. For example if there is a natural disaster and the government spends money on repairing housing, the cost of repairing housing will be included in the government spending portion on GDP even though people might have been equally well off if there was not government spending and a natural disaster.
Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his second report to the U.S. Congress in 1937, in a section titled "Uses and Abuses of National Income Measurements":Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what. GDP as initially defined includes spending on goods and services that would shrink if underlying problems were solved or reduced - for example, medical care, crime-fighting, and the military. During World War II, Kuznets came to argue that military spending should be excluded during peacetime. This idea did not become popular; these activities are tracked because they fit into macroeconomic models (e.g. military spending uses up capital and labor). Ever since the development of GDP, multiple observers have pointed out limitations of using GDP as the overarching measure of economic and social progress. Furthermore, the GDP does not consider human health nor the educational aspect of a population. Instances of GDP measures have been considered numbers that are artificial constructs. American politician
Robert F. Kennedy criticized GDP (or GNI), listing many examples of bad things it does count and good things it does not count:
Deficit spending Deficit spending increases GDP in case of positive
fiscal multipliers. GDP as a metric can incentivize politicians to
overspend. Counterfactual GDP under a
balanced budget scenario can be estimated. If a country becomes increasingly in debt, and spends large amounts of income on debt
interest expense, will be reflected in a decreased GNI but not a decreased GDP. Similarly, if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets.
Unpaid work GDP excludes the value of household and other
unpaid work. Some, including
Martha Nussbaum, argue that this value should be included in measuring GDP, as household labor is largely a
substitute for goods and services that would otherwise be purchased with money. Even under conservative estimates, the value of unpaid labor in Australia has been calculated to be over 50% of the country's GDP. A later study analyzed this value in other countries, with results ranging from a low of about 15% in Canada (using conservative estimates) to high of nearly 70% in the United Kingdom (using more liberal estimates). For the
United States, the value was estimated to be between about 20% on the low end to nearly 50% on the high end, depending on the methodology being used. Because many public policies are shaped by GDP calculations and by the related field of
national accounts, public policy might differ if unpaid work were included in total GDP. Some economists have advocated for changes in the way public policies are formed and implemented. Some have pointed out that GDP did not adapt to sociotechnical changes to give a more accurate picture of the modern economy and does not encapsulate the
value of new activities such as delivering price-free information and entertainment on
social media. In 2017
Diane Coyle explained that GDP excludes much unpaid work, writing that "many people contribute free digital
work such as writing
open-source software that can substitute for marketed equivalents, and it clearly has great economic value despite a price of zero", which constitutes a common criticism "of the reliance on GDP as the measure of economic success" especially after the emergence of the
digital economy. A 2025 study in the
American Economic Journal devised a new GDP measurement (GDP-B) that accounts for the welfare value of new goods and free goods. Along with several coauthors, they proposed an alternative approach, GDP-B, which is based on measuring the
benefits of goods and services, rather than their price or cost.
Health In 2013 scientists reported that large
improvements in
health only lead to modest long-term increases in GDP per capita. After developing an abstract metric similar to GDP, the
Center for Partnership Studies highlighted that GDP "and other metrics that reflect and perpetuate them" may not be useful for facilitating the production of products and provision of services that are useful – or comparatively more useful – to society, and instead may "actually encourage, rather than discourage, destructive activities". The number of
obese adults was approximately 600 million (12%) in 2015.
Environment decrease Many
environmentalists argue that GDP is a poor measure of social progress because it does not take into account harm to the
environment. In the language of economics, everything comes down to its monetary value. In essence, GDP rewards behaviors that are detrimental to the environment. For example, traffic jams could cause GDP to increase as there is a higher consumption of gasoline, however, GDP fails to consider citizens' well-being in terms of the quality of air due to air pollution from the traffic jams. Various alternatives have been developed(see below). A 2020 study found that "poor regions' GDP grows faster by attracting more polluting
production after connection to China's expressway system. GDP may not be a tool capable of recognizing how much
natural capital agents of the economy are building or protecting. In 2020 scientists, as part of a
World Scientists' Warning to Humanity-associated series, warned that worldwide growth in
affluence in terms of GDP-metrics has increased
resource use and
pollutant emissions with affluent
citizens of the world – in terms of e.g. resource-intensive consumption – being responsible for most negative environmental impacts and central to a transition to safer,
sustainable conditions. They summarised evidence, presented solution approaches and stated that far-reaching
lifestyle changes need to
complement technological advancements and that existing societies, economies and cultures
incite consumption expansion and that the
structural imperative for
growth in
competitive market economies inhibits
societal change. Sarah Arnold, Senior Economist at the
New Economics Foundation (NEF) stated that "GDP includes activities that are detrimental to our
economy and
society in the long term, such as
deforestation, strip mining, overfishing and so on". The number of trees that are net lost annually is estimated to be approximately 10 billion. The global average annual deforested land in the 2015–2020 demi-decade was 10 million hectares and the average annual net forest area loss in the 2000–2010 decade 4.7 million hectares, according to the
Global Forest Resources Assessment 2020. According to one study, depending on the level of
wealth inequality, higher GDP-growth can be associated with more deforestation. In 2019 "agriculture and
agribusiness" accounted for 24% of the GDP of Brazil,
where a large share of annual net tropical forest loss occurred and is associated with sizable portions of this economic activity domain.
Steve Cohen of the Earth Institute elucidated that while GDP does not distinguish between different activities (or
lifestyles), "all consumption behaviors are not created equal and do not have the same impact on
environmental sustainability".
Johan Rockström, director of the Potsdam Institute for Climate Impact Research, noted that "it's difficult to see if the current G.D.P.-based
model of economic growth can go hand-in-hand with rapid
cutting of emissions", which nations have agreed to attempt under the
Paris Agreement in order to mitigate real-world impacts of climate change. In 1989,
John B. Cobb and
Herman Daly introduced
Index of Sustainable Economic Welfare (ISEW) by taking into account other factors such as consumption of nonrenewable resources and degradation of the environment. ISEW is roughly defined as: personal consumption + public non-defensive expenditures − private defensive expenditures + capital formation + services from domestic labour − costs of
environmental degradation − depreciation of natural capital. In 2005,
Med Jones, an American Economist, at the International Institute of Management, introduced the first secular Gross National Happiness Index a.k.a.
Gross National Well-being framework and Index to complement GDP economics with additional seven dimensions, including environment, education, and government, work, social and health (mental and physical) indicators. The proposal was inspired by the King of Bhutan's
GNH philosophy. In 2019, Serge Pierre Besanger published a "GDP 3.0" proposal which combines an expanded GNI formula which he calls GNIX, with a
Palma ratio and a set of environmental metrics based on the Daly Rule. The UK's
Natural Capital Committee highlighted the shortcomings of GDP in its advice to the
UK Government in 2013, pointing out that GDP "focuses on flows, not stocks. As a result, an economy can run down its assets yet, at the same time, record high levels of GDP growth, until a point is reached where the depleted assets act as a check on future growth". They then went on to say that "it is apparent that the recorded GDP growth rate overstates the
sustainable growth rate. Broader measures of wellbeing and wealth are needed for this and there is a danger that short-term decisions based solely on what is currently measured by national accounts may prove to be costly in the long-term". China launched the
Gross Ecosystem Product (GEP) in 2020. It measures the contribution of ecosystems to the economy, including by regulating climate. It spread widely across the country. The first province to issue local rules about GEP was
Zhejiang, and a year later it has already decided the fate of a project in the
Deqing region. For example, the GEP of Chengtian Radon Spring Nature Reserve has been calculated as US$43 million.
GDP per capita in 2024 GDP changes with
population change. GDP adjusted for population is called
Per-capita GDP or
GDP per person. This measures the average production of a person in the country. The major advantage of GDP per capita as an indicator of the standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP every quarter, allowing trends to be seen quickly. It is measured widely in that some measure of GDP is available for almost every country in the world, allowing inter-country comparisons. It is measured consistently in that the technical definition of GDP is relatively consistent among countries. It can be argued that GDP per capita is an indicator of standard of living. As a result, GDP per capita as a standard of living is a continued usage because most people have a fairly accurate idea of what it is and know it is tough to come up with quantitative measures for such constructs as happiness, quality of life, and well-being.
Lists of countries by GDP per capita •
List of countries by GDP (nominal) per capita •
List of countries by GDP (PPP) per capita •
List of countries by past and projected GDP (nominal) per capita (
PPP)
Income distribution GDP does not account for
income distribution. This can lead to misleading characterizations of economic well-being if the income distribution is heavily skewed toward the high end, as the poorer residents will not directly benefit from the overall level of wealth and income generated in their country (their income might decline, even as the mean
GDP per capita rises). GDP per capita measures (like aggregate GDP measures) do not account for income distribution (and tend to overstate the average income per capita). For example, South Africa during apartheid ranked high in terms of GDP per capita, but the benefits of this immense wealth and income were not shared equally among its citizens. The United Nations has aimed in its
Sustainable Development Goals, amongst other global initiatives, to address wealth inequality. See
income inequality metrics for discussion of a variety of inequality-based economic measures. A representative measure of the living standard is the
median income since it represents the
median voter. The median income growth was found diverging from the GDP per capita growth in some countries.
Standard of living Although a high or rising level of GDP per capita is often associated with increased economic and social progress, the opposite sometimes occurs. For example,
Jean Drèze and
Amartya Sen have pointed out that an increase in GDP or in GDP growth does not necessarily lead to a higher standard of living, particularly in areas such as healthcare and education. Another important area that does not necessarily improve along with GDP is political liberty, which is most notable in China, where GDP growth is strong yet political liberties are heavily restricted. GDP does not account for the distribution of income among the residents of a country, because GDP is merely an aggregate measure. An economy may be highly developed or growing rapidly, but also contain a wide gap between the rich and the poor in a society. These inequalities often occur on the lines of race, ethnicity, gender, religion, or other minority status within countries.
Capabilities In the 1980s,
Amartya Sen and
Martha Nussbaum developed the
capability approach, which focuses on the functional capabilities enjoyed by people within a country, rather than the aggregate GDP within a country. These capabilities consist of the functions that a person is able to achieve. In 1990,
Mahbub ul Haq, a Pakistani economist at the United Nations, introduced the
Human Development Index (HDI). The HDI is a composite index of life expectancy at birth, adult literacy rate and standard of living measured as a logarithmic function of GDP, adjusted to purchasing power parity. In 2009 Professors
Joseph Stiglitz,
Amartya Sen, and
Jean-Paul Fitoussi at the
Commission on the Measurement of Economic Performance and Social Progress (CMEPSP), formed by French President,
Nicolas Sarkozy published a proposal to overcome the limitation of GDP economics to expand the focus to well-being economics with a well-being framework consisting of health, environment, work, physical safety, economic safety, and political freedom. This has been adopted in a number of countries as a
wellbeing economy policy. In 2008, the
Centre for Bhutan Studies began publishing the
Bhutan Gross National Happiness (GNH) Index, whose contributors to happiness include physical, mental, and spiritual health; time balance; social and community vitality; cultural vitality; education; living standards; good governance; and ecological vitality. In 2013, the
OECD Better Life Index was published by the OECD. The dimensions of the index included health, economic, workplace, income, jobs, housing, civic engagement, and
life satisfaction. Since 2012, John Helliwell,
Richard Layard and
Jeffrey Sachs have edited an annual
World Happiness Report which reports a national measure of subjective well-being, derived from a single survey question on satisfaction with life. GDP explains some of the cross-national variation in life satisfaction, but more of it is explained by other, social variables.
Sustainability of growth In the second decade of the 21st century the
United Nations gave the task of creating a measurement of progress that takes "human wellbeing, sustainability and equity" into account to a group co-chaired by
Kaushik Basu and
Nora Lustig. In 2025 it published a report which argued that recent global shocks make the need for transformation more urgent. In January 2026, the UN held a conference named "Beyond GDP" attended by major economists. In February 2026,
Antonio Guterres said: "We must place true value on the environment and go beyond gross domestic product as a measure of human progress and wellbeing." The initiative followed a debate about
sustainable economic structures between
green growth advocates, green
Keynesians and advocates of
doughnut economy,
Wellbeing economy,
steady-state economics,
degrowth, and according to a recent survey, 73% of around 800 climate policy researchers support post-growth. According to
Jason Hickel this initiative will not be enough, because: "A deeper system change is required. Specifically, we need to democratise control over production, which can enable us to change what we produce and for whom. "The dominance of GDP is not an accident, it occurs because GDP measures what is valuable to capital. It is the structure of capitalism that ultimately must be overcome." == See also ==