Flaws of GDP accounting and alternative approaches in Asia
Thomas Cobti, Sophie Lawrence, Joe Lewis, George Serafeim
Do the new challenges we face in the 21st century, such as ageing populations, climate change, and rising inequality demand new tools of measurement and new ways of valuing progress?
In the report, we explore how GDP accounting can lead to misinterpretation of the state of well-being in a country and the direction of travel of economies and societies. We researched 10 flaws of GDP accounting (such as overlooking economic inequality) and analysed the flaws using a sample of Asian countries as case studies. For many of the countries within our sample we find that GDP is either overestimating or underestimating the level of national wellbeing. Solely using GDP will not provide an accurate view of the level of wellbeing. We provide investors with actionable information about which countries are likely to contain hidden and ignored risks and opportunities.
Next, we identify existing alternative national accounting metrics and analyse the merits of each by presenting the ones that most (and least) comprehensively account for the ten flaws of GDP. Whilst none of the alternative measures fully address the flaws of GDP they can help account for some of the deficiencies of GDP (for example, the Human Development Report, the Global Competitiveness Index and the Genuine Progress Index manage to account for several of the GDP flaws).
Investors should recognize GDP’s flaws and the effect these flaws can have in capturing the real level of well-being within the country. A more accurate picture of wellbeing can be obtained when additional measures are utilized.