Measurement of Growth through Gross Domestic Product (GDP) VS by ypy11747


									      Measurement of Growth through
       Gross Domestic Product (GDP)
      Gross National Happiness (GNH)

Wanida Mahakit
Director,National Accounts Office
Office of the National Economic and Social
Development Board (NESDB)
 Outline for discussion
Goals of development: From
Wealth of Nation to Nation
Gross Domestic Product (GDP):
Measuring economic activity
Beyond the Gross Domestic
Product (GDP): Green GDP,
Well-being index, HPI, etc.
  Policies formulation
Values          = PRINCIPLES


                = OPERATION


    Reflect values

    Determine policies   Expenditure
    Track and evaluate
     Goals of development
 1950s – 1960s

Development       Economic Development

Main indicators       GDP growth
Goals of development
     GDP growth

   Wealth of Nation

     Trickle down
     the “poor”?
    Goals of development


       Human Development
1990’s Human development is a process of
enlarging people’s choices and the level of
their achieved well-being
Goals of development
    Main indicators

Human Development Index
    Goals of development

       National Happiness

2000’s GNH is being presently pursued
through four platforms: economic
development, environmental preservation,
cultural promotion and good governance
Goals of development
     Main indicators

What is the suitable indicator
          for GNH ?
Gross Domestic Product (GDP)
GDP: measuring the total of all
economic activities in one country,
regardless of who owns the
productive asset
GDP : widely used to assess the
economic performance of countries
GDP : combines two threads

   international concepts

   statistical classification
Gross Domestic Product (GDP)
GDP: measured in three different
but equivalent ways
   Aggregate Supply = Aggregate Demand

     Y (GDP)    =      C + I + G + (X – M)

  1 .Production Approach

  2. Expenditure Approach

  3. Income Approach
                 Production unit

Intermediate Input

                       Economic    Goods
Primary Input           activity     and
• Labor                            Services
• Land
• Capital
• Entrepreneur
GDP calculation: Value Added Approach

                 Cost : IC
            (Value Added : VA)
 Gross Domestic Product (GDP)
GDP omissions: the distinct issue
  is environment factors
  Depletion of resources: an
  irreplaceable part of the nation’s
  capital stock of resources has been
  Environmental costs: GDP does
  not distinguish between green and
  polluting industries.
Beyond Gross Domestic Product
      Goals of development

       Wealth of Nation

       National Happiness
Beyond Gross Domestic Product
  constructing data for development
  evaluation that wider than
  economic aspect: 2 approaches
  Adjusting GDP : GDP - ?
        Green GDP
  Supplementing GDP: GDP + ?
       Human Development index
       well-being index in Thailand
  Happy Planet Index (HPI)
              Green GDP
sustainable development
Humanity has the ability to make development
sustainable -- to ensure that it meets the needs
of the present without compromising the ability
of future generations to meet their own needs.
(World Commission on Environment and
Development, 1987, p. 8).
                  Green GDP
       sustainable development

The three-pillar approach

               The ecological approach

                                         The capital approach
              Green GDP
     The three-pillar approach

social   sustainable development   economic

             Green GDP
The ecological approach: Sustainability in the
economic and social spheres is subordinate to
sustainability of the environment.

              social    economic
                     Green GDP
The ecological approach to sustainable
 Key property to be sustained is the capacity of ecosystems
 to respond with resilience to external perturbations and
 the ecological approach is that the health of ecosystems
 must be protected and enhanced
 measurement within two categories:
  – measures of the pressures placed on ecosystems by human activities

  – measures of the responses of ecosystems to these human pressures.
               Green GDP
The capital approach
 The idea of sustainable development
 from a capital base:
     “Sustainable development is development
 that ensures non-declining per capita national
 wealth by replacing or conserving the sources of
 that wealth; that is, stocks of produced, human,
 social and natural capital.”
              Green GDP
The capital approach

 The capital approach to sustainable development
 is most closely associated with the thinking of
 economists on the Green GDP.
 The Green GDP does offer a great deal with the
 measurement framework of natural capital and
 its relationship to sustainable development.
 Natural capital comprises three principal
 categories: natural resource stocks, land and
                 Green GDP
The capital approach

 Natural capital may fall into one of three
 groups of functions:
 – Resource function covers natural resources drawn into
   the economy to be converted into goods and services for
   the benefit of mankind
 – Sink function absorbs the unwanted by-products of
   production and consumption
 – Service function provides the habitat for all living
   beings including mankind.
          Green GDP
The Green GDP or A Satellite System
of Integrated Environmental and
Economic Accounting (SEEA) is a
satellite account of the System of
National Accounts.
The Green GDP has the capacity to
respond to data needs across the full
range of views within the capital
The example for Green GDP
No.     Item                                      Billion Baht   Index
1       Gross Domestic Product (Value Added)
                                                    692.4              100
2       Consumption of fixed capital
                                                    104.4             15.1
3=1-2   Net Domestic Product
                                                    588.0             84.9
4       Decline in the value of resource stocks
        due to extraction                            58.6               8.4
5=3-4   Extraction adjusted domestic product
                                                    529.4             76.5

6       Decline in the value of resource stocks
        due to extraction: net of                     12.8              1.8
        discoveries/natural growth
7=3-6   Depletion adjusted domestic product
                                                    575.2             83.1
   GDH or GNH indicators:
     Well-being Index?
In Thailand national well-being has
been in concern for development
since the 8th National Economic and
Social Development Plan (1997-
Office of the National Economic and
Social Development Board (NESDB)
plays a key role in developing this
indicator called Well-being Index
   GDH or GNH indicators:
     Well-being Index?
A concept of well-being in Thailand
has been developed from professor
Sen’s idea
The well-being is an indicator of how
well people is functioning or what
capabilities people have.
The government’s role is to improve
the well-being of people by providing
means to increase their capabilities
      GDH or GNH indicators:
        Well-being Index?
The well-being indicators in Thailand have
 constructed in composite index that is covered in 7
 components 25 sub-components
Working life
Income and distribution
Family life
Good governance
        GDH or GNH indicators:
          Well-being Index?
To construct each well-being component to evaluate the
  achievement of the development, the equation is

Achievement index    =          outcomes                         ………. (1)
                            objective(criteria )  × 100
                                                 

                          outcomes − lowestgoal         
Achievement index    =    highestobjective − lowestgoal  × 100   ………. (2)
                                                        

For index on social problems, the lower value the better
                                         1                 
Achievement index    =     outcomes / objective(criteria )  × 100 ………….   (3)
                                                           
  Indicators for GDH or GNH:
     Happy Planet index (HPI)
The new economics foundation (nef) has
introduced the Happy Planet Index (HPI) that is
new measurement shows the ecological efficiency
with which human well-being is delivered.
HPI has different rationale to the other
alternative indicators which begin with GDP, and
then minus social and environmental costs to
create a more accurate measure of economic
The HPI calculates for the ecological efficiency
with which countries deliver happiness and long
lives for their people.
    Indicators for GDH or GNH:
      Happy Planet index (HPI)
The HPI incorporates 3 separate components:
  ecological footprint and life expectancy are
  objective variables
  while self-reported life satisfaction is subjective
  variables .

               Life Satisfaction × Life Expectancy 
 HPI =                                             
                      Ecological Footprint         

*life expectancy x life satisfaction
                           = Happy Life Years (HLY)
What is the indicator for GDH or
          GDH or GNH

GDP       Well-
 GDP per capita, HDI Ranking, HPI ranking for 6 ASEAN countries and

Country          GDP per          HDI Ranking      HPI ranking
1.Singapore                  21               25              131
2. Brunei                    29               33              100
3. Malaysia                  58               61                 44
4.Thailand                  66                73                 32
5. Philippines             103                84                 17
6. Indonesia               115               110                 23
7. Bhutan                  134               134                 13

Source: The Happy Planet Index and Human Development Report 2005
  Office of the National Economic and Social
  Development Board

Preliminary conceptual framework

Gross National Happiness
          Concepts                                Objectives

GDP and growth of GDP per              Develop framework, compile well-being
capita have been used to               index in Thailand on the basis of
measure development success            participation
of a country
                                       To be a tool to indicate status, and
                                       trend, to evaluate and consequently to
From the 8th Plan, Sufficiency         apply for public policy formulation
Economy philosophy has been            toward happiness of the Thai society.
brought in to lead the country’s
development. The key concerns, thus,
shift to the people and their
happiness.                             As an instrument for driving changes
                                       into the mainstream concept of living a
GDP is no longer sufficient.           happy life.

There’s a need to develop new
indicator that reflects “well-         To set development procedures for
being” of the people.                  database necessary for compiling the
                                       well-being index.
 Conclusion from review on related indices
All of the indices incorporate many aspects of development and do not
rely mainly on the GDP.

Development of indices focuses intensively on measuring happiness of
the people.

Well-being components of these indices are mainly subjective data.

These indices are used as instrument for policy-planning, evaluation as
well as building community learning process to solve problems on their
            “Sufficiency Economy” Philosophy

Main idea
                                     Middle Path
                        Living practices in every level of life
                   Family, community and state – on development


                    Rational                          Immunity

               Knowledge                    Merit                  Effort
Condition   Individual knowledge      Honest, trustworthy   Patient, hard-working,
             in theories, cautious                                conscious

 Goal or     Linking way of life/economics/social/environment/politics
 results             Create balance/security/fair/sustainability
                                Prepared for changes
                Integration Development with
            “people as the center of development”
              To human-centered                     People as the center of benefits
From focusing     and happiness                     and well-being
on economic
development                         Benefits of
                                    the people

                                                    Consider “geo-social” of variety of
                                                    physical environment of the area and
From separate   To integration of                   the community’s way of life
thinking              all aspects   human
                                                    Develop “step-by-step” on self-
                                                    reliance-grouping-network-connect to
From top-down     To bottom-up                      outside, or “explode from the inside”
development            strategy

                   Living peacefully among people,
          Between people, nature and environment sustainably
        Development Vision

       Sufficiency Economy Philosophy

 Thais         Community/         Economic Natural resources       Country
                institution        system    environment         Management

 Moral-led    Strong community     Quality         Quality      Good governance
 Proficient    Peaceful society    Stability     environment        Institutional
 Keep-up                             Fair       and sustained       Democracy
Warm family                                        natural      Living in the world
                                                  resources     society with pride

       Overall Happiness throughout Society
                   Definition and components
    means a way of life—mental, physical and wisdom that connect social, economic
      and environmental aspects together whose relationship is right, balance and
   leading toward peaceful living among human beings, between human, nature and
                        environment under good management.

                         Develop well-being of people and family
                                                                                  governance in
Balance between                                                                      country
human and nature                                                                  management

                            Quality and fair                         Strong and
                            economic system                        peaceful society
   Factors for happiness                                          Well-being
                              Quality and fair economy
  Balance of living
between human and     Economic growth with efficiency and
   environment        productivity. Use of knowledge,
                      innovation. Nation-wide employment.
 Preserve             Strong grassroots economy. Businesses
 natural bases        compete with transparency, fair,
 and balance of       responsible, aiming to build economic
 biological           immunity so that the country is stable.
 system. Use          Benefits are distributed fairly and       People and family
 them fairly,
 reserving for                                                  Good health, mind, emotion,
 future                      Strong and peaceful society
 generations.                                                   body. Balanced wisdom that
                       People and community access to
 Maintain              Buddhism philosophy, have good           reaches religious philosophy
 variety of            culture and values to hold on to.
 biology and           Accept differences of cultures,              and morality. Altruism,
 manage                respect each other, solve problem           honest occupation, have
 environment           with peace, leading toward healthy
 well.                 community and peaceful society             security in life. Warm and
                                                                     loving family in good
                                                                       environment with
            Good governance in country management
                                                                  independence, pride and
 Good management structure, mechanism and
 procedures. Rules encourage involvement by all parties                     equality
 to manage the country with rule of law, morality,
 transparency and responsibility. Hold on to democratic
 culture and decentralize power to the people

      Promote moral and learning continuously

                       National Accounts Office

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