The adequacy of GDP as a measure of well-being

Abstract

The aim of this paper is to question the GDP as a measure of well-being. GDP has been used since its creation to measure the total economic activity. We critique its use by leading economists and politicians as a main indicator of overall progress. There are crucial factors, not considered in the calculation of GDP. Such as natural, social and human capital, that are benchmarks in several measures of sustainability and economic growth. Concretely, we try to determine to what extent the GDP per capita can be considered a good indicator of welfare. To do that, we empirically analysed the relationship between GDP per capita and most proper indicators regarded to human well-being. Using data for 95 countries, we find a positive relation between GDP and well-being. This result, although should be interpreted with caution, reveal that in spite of GDP clearly misses out some critical aspects, such are the environment and the self-perceived well-being, can be used as a good proxy of economic welfare.