LIMITS |
L |
Living standards inequality |
GDP per capita hides how income is distributed — inequality can rise even with growth. |
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I |
Informal and unrecorded economy |
Excludes unpaid household work, volunteering, and black-market transactions. |
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M |
Market externalities ignored |
GDP doesn’t account for pollution, deforestation, or other external costs. |
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I |
Inflation & quality distortions |
Changes in price levels or product quality can distort GDP comparisons. |
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T |
Type and quality of output |
GDP values all goods equally — socially harmful goods (e.g., cigarettes) are not discounted. |
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S |
Sustainability and future welfare |
Ignores natural resource depletion and intergenerational equity. |
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AND |
A |
Allocation inefficiencies |
GDP can rise even with inefficient resource use or speculative growth. |
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N |
Non-market well-being factors |
Aspects like happiness, health, education quality, and social life are excluded. |
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D |
Demographic and distributional limits |
Doesn’t account for age structure, dependency ratios, or regional disparities. |
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BEYOND |
B |
Black economy and corruption |
Underreporting, tax evasion, and illegal income flows distort GDP accuracy. |
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E |
Environmental degradation |
Natural disasters or deforestation may increase GDP via reconstruction spending. |
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Y |
Year-to-year volatility |
Short-term GDP changes don’t always reflect sustainable progress. |
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O |
Output vs. Outcome |
Measures quantity of goods produced, not the quality of human life outcomes. |
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N |
Non-inclusive growth |
High GDP growth can coexist with unemployment and regional exclusion. |
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D |
Defensive expenditures |
Spending to repair damage (pollution control, health costs) raises GDP artificially. |
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