GDP isn’t Suitable For Measuring Welfare ?
GDP (Gross Domestic Product) or Gross Domestic Product is a measure of economic income and expenses from the total market value of all goods and services produced in a country in a certain period of time.
The GDP value is obtained from adding up every added value obtained from all business units in a country. Business units obtained can come from all sectors such as:
- Construction
- Industry
- Service
- Manufacture
- Agriculture
- Finance
- Mining
GDP is often considered as an indicator of the welfare of a country. Because the higher the GDP means that the production rate is also high, which indicates the higher purchasing power of the people.
To measure GDP, you can use the formula:
Total Consumption Expenditure
Total Government Expenditures
Total Investments
Net Exports (Ekspor — Impor)
However, is “Personal and Public Consumption” measured based on each person’s spending? and not in total public consumption, which could be dominated by the upper class society?
GINI Ratio
The GINI Ratio is an indicator that can be used to determine the level of inequality in the distribution of a country’s national income. This ratio is used to measure the degree of inequality / inequality of income distribution to the population
- The horizontal axis represents the total population size
- The vertical axis represents the amount of income
- The diagonal line from the bottom left to the top right represents the relationship between income and total population
- The closer to the diagonal line, the more perfect the equalization will be
- The farther the curve is from the diagonal line, the higher the level of inequality.
It’s not wise enough to measure the welfare of the population only in terms of GDP and per capita income. The GINI ratio is considered more suitable for measuring welfare because it measures the distribution of income earned by the community.
