Role of GDP in Measuring Economic Growth
The concept of GDP per capita involves calculating a nation’s Gross Domestic Product (GDP) and dividing it by its total population. GDP represents the total monetary value of all goods and services produced within a nation’s borders over a specific period (Basic Economics, 2019). By calculating GDP per capita, we can assess average economic productivity per person, providing insight into the overall living standards and economic prosperity of the population.
The concept of economic growth entails the rise in the inflation-adjusted market value of the goods and services produced by an economy over time (Basic Economics, 2019). Typically, it is measured as the percentage growth in real GDP. A surge in GDP per capita is commonly seen as a sign of improved living standards for the average individual, as it indicates higher economic output per person.
Economic Growth Explored in Kanani and Larizza’s Article
In the context of the Kanani and Larizza (2019) article, the drivers of economic growth, such as higher saving rates, technological innovation, and so on, are connected to the fundamental argument that strong and effective institutions are essential for sustained economic growth. These drivers are influenced by how well institutions function within a society. For example:
- Higher saving rates can lead to more investment in capital goods, but efficient financial institutions are needed to channel these savings into productive investments.
- Technology innovation has the potential to spur economic advancement by enhancing productivity. However, the presence of property rights institutions is pivotal in safeguarding inventors’ interests, enabling them to reap the rewards of their creations and fostering a conducive environment for continued innovation.
- Other factors like human capital development and infrastructure are also important for growth. Still, these too rely on institutions to provide education, build and maintain infrastructure, and ensure that the benefits are broadly distributed.
The central point emphasized in the article on inequality amid economic advancement is the significant influence of institutions (Kanani & Larizza, 2021). The authors posit that to tackle inequality effectively, the key lies in the inclusivity of institutions. Inclusive institutions are defined as those that offer an equitable platform for economic engagement to all segments of society. These institutions guarantee a just allocation of economic gains and ensure that every individual can play a role in and benefit from economic progress.
References
Basic Economics. (2019). (n.p.): IntroBooks.
Kanani, A., & Larizza, M. (2021). Institutions matter for growth and prosperity, today more than ever. World Bank Blog.