Figure 1 . Three Measures Beyond GDP
Source : Federal Reserve of St . Louis , https :// www . stlouisfed . org / en / open-vault / 2023 / apr / threeother-ways-to-measure-economic-health-beyond-gdp .
HOW DO WE MEASURE GROWTH ? The most commonly used measure of economic output and growth is Gross Domestic Product , or GDP . At the state and territory level in Australia these are reproduced as Gross State Product ( GSP ) or State Final Demand . The measure of GDP or GSP , is based on the value of all goods and services produced in a certain period ( often one year ). This can be based on the value of the outputs ( expenditure approach ) or are the value of the inputs ( income approach ). Focusing on what is produced is a less than satisfactory measure of growth or well-being . It does not capture many items ( such as air or water quality ) and perversely captures others ( such as a chemical leak increasing the output of hospital services ). It is now widely accepted that to inform policy to promote meaningful growth , other measurement approaches are needed .
Several initiatives have been undertaken to try and improve the way we measure growth and prosperity . Many of these fall under the heading of ‘ well-being ’. These well-being indices have gained a great deal of tractions since Bhutan first introduced the notion of Gross National Happiness in the 1970 ’ s ( in 2008 , Bhutan formally adopted this measure in its constitution ). In 2015 the United Nations formally adopted the Sustainable Development Goals ( SDGs ) which attempt to measure human performance or growth across 17 variables . These variables include traditional output such as production and employment but also include quality measures such as environment and health . These efforts have largely focused on the national ,
or even global , level . Three significant approaches have been the Human Development Index ( HDI ), the OECD Better Like Index and the Genuine Progress Indicator ( Figure 1 ).
Human Development Index The Human Development Index ( HDI ) was development by the UN Development Programme in 1990 in an attempt to capture a broader sense of growth , especially pertaining to gains made by developing economies . The emphasis was placed on people and their development , rather than just economic output . The HDI measures average achievement in three dimensions of human development : ( 1 ) health via life span and physical condition ; ( 2 ) schooling through levels of education and training ; and ( 3 ) more traditional economic measures such as per capita income .
The health dimension is assessed by life expectancy at birth , the education dimension is measured by mean of years of schooling for adults aged 25 years and more and expected years of schooling for children of school entering age . The economic dimension is measured by gross national income per capita . The HDI uses the logarithm of income , to reflect the decreasing importance of income with increasing national wealth . The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean . Figure 2 shows the HDI from the 2021 report , highlighting the Australian and World averages . A value closer to 1.0 indicates a high human development score .
Figure 2 . Australia on the HDI
Source : UNDP https :// hdr . undp . org / data-center / human-development-index #/ indicies / HDI
ECONOMIC DEVELOPMENT JOURNAL VOL 16 NO 2 2023 07