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Limitations of GDP

GDP is usually seen as a measure of economic development and the welfare of the economy. It is considered as a robust indicator of development but cannot be considered as an adequate indicator for development. It fails to take into consideration the multi-dimensional character of economic development or in other words, the inherent shortcomings of capitalism nature of economy that results into concentration of income and wealth as well as power (IGC, 2020). GDP merely focuses on the measurement of marketed activities of the economy and consequently ignores other useful aspects of the economy which are relied on by the people for their welfare. It ignores social, human and natural aspects of the economy. The overall living quality i.e. standard of living increases to some extent with the increase in GDP but beyond this extent, income inequality and depletion of capital also increase with the increase in GDP.

Due to the above discussed limitations of GDP as a measure of economic development, the other measures are created and helpful. The most important measure for economic development can be the Human Development Index (IGC, 2020). It is one of the development matrices which make an attempt for the measurement of multi-dimensional aspect. This index is the composite one which gives ratings to country on the basis of overall performance in three major criteria – Per capita GDP, Life expectancy as well as education.


IGC. 2020. Is GDP An Adequate Measure Of Development? - IGC Blog. [online] Available at:


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