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

Author

Victoria University, Melbourne, Australia

Abstract

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