Enlarged GDP – illustrative example

Being a gross measure of national production, GDP was never intended as the indicator of progress that it has become. Using GDP as a measure of material well-being assumes that every economic activity is having a positive effect.

This is not necessarily the case. By definition, an increase in crime rates, for example can add to a nation’s GDP because of higher police activity. The same goes for medical costs related to poorer public health, clean-up costs of environmental disasters, etc.

Enlarged GDP measures attempt to produce a more comprehensive macro-economic indicator by adjusting GDP figures for such ‘negative’ developments to give a more ‘accurate’ picture of the state of the economy.

Adjusted net savings

The Adjusted Net Saving (ANS) is an example of an enlarged GDP indicator. The ANS builds on Gross National Savings but adjusts it for developments in natural, economic and social assets to arrive at a more accurate picture of a country’s “true” change in wealth.

ANS is, for example, negatively affected by the depletion of natural resources or by pollution damages, but positively affected through investments in education. Having made these adjustments, if ANS is positive it means that a country is building or saving “true wealth”, while a negative index means that the “true wealth” is declining.

The graph below shows an example of how ANS evolves compared to GDP per capita. It is interesting to observe that even if a country has high GDP per capita they do not necessarily have high ANS.