Development Economics: Nature and Sources of Economic Growth

*Main limitations:
1.Does not include imports - a large source of economic growth - capital importation
2.Non-monetary incomes - GDP only measures value of G&S which enter into exchange
3.depreciation - net addition of production gives a more realistic account.
4.population changes - population may rise faster than production, with living standards falling.
5.income distribution - real GDP per capita cannot even measure where living standards improving
6.composition of output - No indication of division between capital & consumer goods
7.changes in productivity - do not take into account working conditions under which GDP rose.
8.the costs of growth - GDP cannot measure satisfaction in the community, lost/gained leisure
9.transfer payments - GDP only registers household incomes received for contribution to production
10.Underground economy - payments in cash in particular may go unrecorded - important in LDCs.
11.Non-material factors - political freedom, environment, cultural achievement not accounted for.
12.changes in the value of money - allowance must be made for inflation
*GDP at current prices (nominal GDP): annual output in terms of actual prices at which G&S sold.
"»GDP at constant prices (real GDP): measures real value of goods and services produced in any particular year by eliminating the effects of inflation from GDP at current prices. (12.)
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