Appropriateness of Using GDP and GNI

Disadvantages of GDP and GNI

• GDP and GNI don't accurately reflect the well-being of people in the country. China's GDP has multiplied by 40 in the last 30 years, but people are not 40 times happier. 

• They don't show the distribution of wealth in an economy. 

• Because of currency exchange rates, international comparisons are often not accurate.

• Social welfare is ignored.

• Shadow economies or black markets don't count, which are huge parts (up to 50%) of economies in certain countries.

• They do not account for negative externalities such as environmental costs. 

Comparisons over time

• Nominal GDP/GNI negatively reflect an economy's past as it is not adjusting for inflation. 

• Therefore, real GDP is a better value for an economy when comparing it to its historical past.

Comparisons to other countries

• Because some countries have higher costs of living and production, nominal and real GDP/GNI positively reflect such countries. 

• Therefore, adjustments to PPP is a better value for comparing economies.