| STATISTICALLY SPEAKING In defence of GDP as a measure: don’t abandon but build upon it
It is imperfect but too deeply embedded in the institutional architecture of governments, markets and global organizations
budget deficit at 3% of GDP. In addition, GDP is used as an anchor in many legislative or regulatory frameworks. Thus, we have a Nato agreement on defence spending by member states; EU merger guidelines are triggered when the turnover of the concerned companies exceeds a specified percentage of the member country’s GDP, and so on. The various metrics proposed in the UN High-Level Group’s report, while practicable, do not yet have cross-country comparability or methodologies that permit their use in a similar manner.
In addition to governments, private actors such as sovereign risk-rating agencies, bond and equity market investors, and multinational corporations use country GDP estimates and related indicators, either directly or as a key numeraire, while planning their activities. The UN and associated multilateral agencies use GDP and related indicators to assess member contributions.
These examples can be expanded. GDP or GDP growth is not merely an indicator of a country’s performance; it has now become a key component of the architecture of global governance. The widespread adoption of GDP by a wide range of stakeholders is not because they believe it is a perfect measure, but because it possesses three attributes that few other indicators combine.
First, it is produced regularly using an internationally agreed methodology, making it comparable across countries and over time. Second, it is sufficiently stable and well understood to serve as the basis for legislation, regulation and contracts. And third, it enjoys institutional legitimacy: governments, markets, multilateral agencies and courts accept it as an objective measure for setting fiscal rules, allocating resources and monitoring performance. Most proposed alternatives satisfy only the first of these conditions. Very few possess all three. To use an economist’s term, GDP has become more than a statistical measure; it is a network good. Its acceptability is driven substantially by the fact that others find it useful. Other indicators, therefore, face a huge challenge before they can replace GDP.
This discussion should not lead us to conclude that the call to reform GDP measurement is without merit. The path forward is very different. The UN Statistical Commission outlined a solution to these challenges. The recently adopted System of National Accounts (SNA) 2025 does not seek to replace GDP with a broader measure of well-being or sustainability. Instead, it embraces a philosophy of “change with continuity.” It preserves GDP as the internationally comparable measure of production while expanding the statistical system through distributional accounts, environmentaleconomic accounting, and new measures that reflect digitalization and globalization. Rather than abandoning GDP, SNA 2025 recognizes that it has become too deeply embedded in the institutional architecture of governments, markets and international organizations to be replaced.
The answer, therefore, is not to move beyond GDP, but to build around it.