Correlation between GDP Growth, Population, Education, Trade and Income

Correlation between GDP Growth, Population, Education, Trade and Income

Introduction

The gross domestic product (GDP) is the market value of all the final goods and services produced in a country in a given period. As early as the 19th century, the need to compile information on the evolution of an economy over time prompted economists to develop aggregate calculations of a country's total production. In 1942, the U.S. Department of Commerce published the first official set of national accounts: a set of statistics that measure the country's economic variables (Miles, 2005), the most important measures being GDP and gross national product (GNP). This paper discusses the correlation between GDP growth, population, education, trade and income in a concise and comprehensive way.

A Brief Review of Literature

In the GDP, all the goods and services produced are aggregated in terms of value, that is, in terms of the prices paid by the buyers. Because some goods are used to produce other goods (e.g., the steel used in the production of automobiles), adding up the value of all the products would lead to “double counting” (the steel would be counted twice, once as a product of the steel industry and again as part of the value of the automobiles) (Miles, 2005). To avoid that, only “final” goods are taken into account, that is, goods that are not used in the production of other goods (in our example, the automobiles, but not the steel). Alternatively, we can add up the “value added” by each production unit (the value the steel company adds to the raw materials, supplies, and energy purchased from other companies; and the value the auto maker adds to the value of the raw materials and supplies obtained from other industries, etc.).

Household income can be measured in many ways. Often income is measured using the Gross Domestic Product (GDP) per capita. GDP is the dollar value of all goods and services produced for final consumption within a country's borders within a set period of time. GDP is an appealing statistic to use since it is widely available for most countries over a long time period. Indeed, for cross-country comparisons of living standards, GDP per capita figures are the most widely used indicators of economic development (Dudley, 2000). As with poverty lines, care must be taken in comparing GDPs over time and between countries because of inflation and international differences in the “cost of living.” International comparisons of standards of living must be done using incomes adjusted for PPP.

There are several other theoretical problems with using GDP per capita as a primary welfare measure. First, basic GDP statistics fail to account for the distribution of income. A relatively high mean income can disguise pockets of extreme deprivation within certain geographical areas or ethnic groups. This problem can be partially rectified by reporting median rather than mean income and by reporting GDP per capita by income quintile or decile. Other more advanced methods for measuring income distribution, such as the ...