What are some of the limitations of GDP per capita as a measure of social welfare?
Doesn’t show distribution of wealthDoesn’t look at composition of GDP (ex: North Korean military expenditure inflates GDP)
While GDP per capita is a widely used measure of a country’s economic progress, it has some limitations as a measure of social welfare. Some of these limitations include:
1. Inequality: GDP per capita does not account for income inequality within a country. Even if the GDP per capita is high, it may not reflect the standard of living of the average person in the country.
2. Non-monetary factors: GDP per capita does not take into account non-monetary factors that contribute to social welfare such as access to education, healthcare, and social services.
3. Environmental impact: GDP per capita may not reflect the environmental cost of economic activities. For example, a country may have a high GDP per capita due to heavy industrialization, but this may lead to environmental degradation and negative impact on social welfare.
4. Informal economy: GDP per capita can be inaccurate in countries with large informal economies that are not accounted for in official statistics.
5. Life satisfaction: GDP per capita doesn’t account for the level of life satisfaction of the citizens of a country. If a country has a high GDP per capita, but their citizens don’t feel content with their life, it can be an indication that social welfare has not improved.
Overall, GDP per capita alone cannot provide a complete picture of social welfare, and policymakers must consider other economic and social indicators to evaluate social welfare accurately.
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