Blog 7

The SDGs need a new measure of GDP

Degol Hailu, Senior Advisor, UNDP

December 2015

One of the proposed Sustainable Development Goals (SDGs) is achieving economic growth (Goal 8). The target is to achieve “at least 7 per cent gross domestic product (GDP) growth per annum in the least developed countries”. Achieving 7 per cent growth is in the high range,

n a rush to meet such a target, social and environmental outcomes may be compromised. For example, high growth can be attained through exporting labour-intensive goods while restricting wage growth. Similarly, exporting wood products can fuel growth while over-logging forests.

The way we currently measure GDP will also not be a good indicator of sustainable development. Two recent and important reports have attempted to reorient GDP: the Stiglitz-Sen-Fitoussi Report and The New Climate Economy Report.

The first report argues that using GDP as an indicator of economic performance is “attempting to guide the economy and our societies like pilots trying to steering a course without a reliable compass” (p. 9). It recommends that GDP does not unduly focus on measuring production at market prices but, instead, focuses on wealth, income and consumption at the household level, including non-market activities such as domestic work and childcare. This is because GDP per capita growth can go up while household income decreases. Inequality is an outcome of such divergence.

The second report argues that rapid economic growth is possible while protecting the environment. It states that: “Future economic growth does not have to copy the high-carbon, unevenly distributed model of the past” (p. 8). Among the report’s recommendations to ensure that GDP is measured accurately, the following stand out: 1) non-motorised transport systems and carbon free building structures; 2) massive reforestation and restoration of degraded land; and 3) carbon pricing schemes.

But, in spite of these reports and the many researches before them, we seem still wedded to the traditional measure of GDP. Why? There are at least three reasons.

First, with 17 goals, 169 targets and over 300 indicators, the SDGs will not result in one single and easy to understand figure, like GDP growth rate.  

Second, researchers, particularly economists, adore trend analyses. The advent of a new GDP measurement will starve them of the time series data they love to play with.

Third, politicians like GDP: it is a single figure they can easily communicate to voters.

Setting a target to achieve 7 per cent GDP growth rate is a worthwhile objective, but this work will be in vain unless the way we measure growth is also revolutionized.