The Great GDP Obsession
Globally, countries are equally obsessed with GDP growth. As most people know, Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
This is usually the point at which GDP growth becomes a tad murky. To most investors and economists, GDP growth is an extremely important measure of each country’s total market activities.
For investors and economists, GDP is a barometer by which ROI of products and services are determined. For businesses, GDP growth represents their success or failure within their particular industries.
It is easy to see why there is a GDP obsession with growth when financial economic stability is the main goal. Is the great GDP growth obsession valid for determining economic stability? The answer lies in the goods and services contained within GDP growth.
The Reality of GDP Growth
When all factors are considered, GDP growth comes down to what each country possesses that is marketable globally. The reality of GDP growth is heavily dependent upon each country’s natural resources in raw materials or technological advancements.
It is fairly obvious that a country with several major natural or technological resources has an advantage over a country with minimal resources. Limitations on resources result in limitations on goods and services to be marketed globally.
There are upsides and downsides to relying solely on GDP growth to measure economic stability. The upside is that GDP growth encourages advancements in goods and services. The downside is that GDP growth measured in goods and services may not be supported by continued access to natural or technological resources required to produce GDP growth.
The Scope of GDP Growth Globally
For the past two decades, there has been unusual GDP growth in several countries that formerly lacked economic stability. These include Mexico, Thailand, India, Brazil and island nations in Central America. GDP growth in these countries, prior to the 1980s, moved slowly. This resulted in low production of goods and services for export and less economic stability.
The scope of GDP growth is founded upon trade agreements between global nations. When trade agreements allow flexible trade, this impacts upward GDP growth. For example, in nations where lumber is plentiful, trade agreements that allow exportation of lumber to global markets increase GDP growth.
This is also true in service industries. Trade agreements for a variety of standard services benefit importers and exporters by increasing each trade partner’s economic stability through GDP growth.
The Future of GDP Growth
While every nation is obsessed with increasing their country’s GDP growth, it may be unwise to create expectations of lasting growth. The main reason not to create lasting expectations is “reliance.” When a single nation relies too heavily on natural resources of trade partner nations, depletion of natural resources becomes a ripple effect globally and a decrease in trading of goods and services, which decreases GDP growth. Balancing GDP growth, rather than rapid scale GDP growth mandates, can help to level trading fields by focusing less on GDP and more on balanced trade.