A Note on: Alternative Quantitative Measurements of Growth and Welfare for Policy Analysis

Abstract

Measuring development, growth and welfare is an important issue in normative and positive economics.<br />The issue is more critical in developing economies where a good statistical indicator of income, living<br />standard or poverty is crucial for decision-makers in corporate, government, non-government and<br />international organizations in their for-profit or non-profit plans to promote business and trade, enhance<br />growth and welfare, and reduce poverty in needy countries. In the current literature on development<br />economics, trade liberalization for example has been encouraged through official negotiations and<br />agreements and supported by the extensive technical programs of the International Monetary Fund, the<br />World Bank, the Asian Development Bank or the World Trade Organisation and with substantial human<br />and financial resources, to increase growth and raise income or reduce poverty in open but low-income<br />economies.<br />Several quantitative measurements in this context have been adopted to record the effects of this<br />liberalization. The issue is that these different measurements can produce different outcomes casting<br />therefore confusion on the impact of trade liberalization and the evaluation of the effectiveness of<br />economic and trade policy (Winters 2007). This note is a simple demonstration of the sources of the<br />difference in two popular indicators of growth and welfare, namely the rates of change of the GDP and<br />GDP per head (called y and yh respectively) and their important policy implications. It can be regarded as<br />a technical guide to the use of alternative income measurements for scholarly and practical policy<br />analysis. The note also has some pedagogical and practical value, and its results can be applied to other<br />areas of economic and non-economic activity. These include measurements of productivity, investment,<br />consumption, inflation, education expenditure, labour skills, profitability, taxation, finance, bankruptcy,<br />or other fields of quantitative investigation where scaled and ratio measurements are conceptually<br />required.