What limitations exist in using GDP as a development indicator?

GDP as a development indicator has limitations such as not accounting for income inequality, environmental impact, and non-market activities.

Gross Domestic Product (GDP) is a widely used measure of economic activity and development. However, it has several limitations that can distort our understanding of a country's development. One of the main limitations is that GDP does not account for income inequality. It measures the total output of an economy, but it does not tell us how that output is distributed among the population. A country could have a high GDP, but if the wealth is concentrated in the hands of a few, the majority of the population may not benefit from this wealth, leading to high levels of poverty and social inequality.

Another significant limitation is that GDP does not consider the environmental impact of economic activities. Economic growth often comes at the expense of the environment, through pollution, deforestation, and other forms of environmental degradation. However, these costs are not subtracted from GDP. This means that a country could be depleting its natural resources and damaging its environment in the pursuit of economic growth, but this would not be reflected in its GDP.

GDP also fails to account for non-market activities, such as unpaid domestic work and volunteer work. These activities contribute to the wellbeing of individuals and society, but because they do not involve a market transaction, they are not included in GDP. This can lead to an underestimation of the true level of economic activity and wellbeing in a country.

Furthermore, GDP does not measure the quality of goods and services produced, nor does it consider whether these goods and services contribute to human wellbeing. For example, spending on weapons and tobacco contributes to GDP, but it does not necessarily contribute to human wellbeing. On the other hand, spending on education and healthcare, which do contribute to human wellbeing, may not be adequately reflected in GDP if these services are provided by the public sector and are not priced at their full value.

In conclusion, while GDP can provide a useful snapshot of the size of an economy and its rate of growth, it has significant limitations as a measure of development. It does not account for income inequality, environmental impact, non-market activities, or the quality and wellbeing contribution of goods and services. Therefore, it should be used in conjunction with other indicators to provide a more comprehensive picture of a country's development.