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At the very beginning itself, Simon Kuznets, widely accepted as the creator of GDP, cautioned the world by stating, “the welfare of a nation can scarcely be inferred from a GDP” (Kuznet 1934). Regardless, GDP is regularly referred by leading economists, politicians, top-level decision makers, and the media as though it represents overall progress or welfare. For example, a report released by the World Bank says that nothing besides long-term high rates of GDP growth can solve the world’s poverty problem (Commission on Growth and Development, 2008). Politicians love nothing more than to boast about the “booms” and “expansions” that GDP registers on their watch. They all promise "rapid" or "double-digit" yearly increases in the GDP, as if that is an unquestionably desirable thing. GDP rankings of countries are taken as primary scorecard of nation’s economic health and well-being. The greater the GDP, and especially the faster it grows, the better a country is said to be doing. No wonder, economic policies for more than a half century have typically concentrated on increasing GDP only. But now, it is being realized that GDP is a flawed measure of welfare. It is simply a tally of all monetary exchanges that take place in a given year. As such, it does not differentiate between economic activities that add to our well‐being and ones that undermine our quality of life. In this way, needless expenditures triggered by crime, accidents, toxic waste contamination, preventable natural disasters, prisons and corporate fraud count the same as socially productive investments in housing, education, healthcare, sanitation, or mass transportation. Many attempts have been made to redefine progress, and replace GDP with new indicators of progress and welfare. In the international community, perhaps the biggest nudge has come from French President Nicolas Sarkozy, who commissioned a report by marquee-name economists, including Nobel laureates Joseph Stiglitz and Amartya Sen, to find alternatives to what he calls "GDP fetishism". One of the most advanced and commonly discussed indicators among these alternatives is GPI. It is designed to take fuller account of the health of a nation's economy by incorporating environmental and social factors which are not measured by GDP. It attempts to shift prevailing definition of progress from economic growth to people's sense of quality of their lives. The GPI assigns value to the life-sustaining functions of households, communities and the natural environment so that the destruction of these and their replacement with commercialized substitutes, no longer appears as growth and gain. This seminar deals with the limitations of GDP as a measure of welfare and gives a brief overview of GPI. Important studies related to calculation of GPI for various parts of the world are also presented.
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