Measuring disparity and development

The GNP measure

The most obvious way of starting to investigate the differences between rich and poor countries, or individuals, is to compare their incomes. As I explain below, there are certain pitfalls in this approach to the differences between rich and poor countries, but up to a point it is a good and useful one.

There are three possible measures of a country's collective income, and of these the one most commonly used is the gross national product or GNP. The gross domestic product or GDP is the value of all goods and services produced in the country, usually valued ‘at factor cost’, that is, adjusting for indirect taxes and subsidies. Gross national product is the gross domestic product at factor cost, plus any balance of income received from abroad. National income is gross national product net of depreciation. It represents the resources available for current use after setting aside sufficient to maintain the nation's stock of capital equipment, and is the best measure accordingly; however, it is more difficult to calculate, since it is hard to arrive at estimates, or even a satisfactory definition, of depreciation; and it is not available for as many countries as is GNP.

Most countries have statistical departments which calculate and publish an annual estimate of the GNP in the national currency. This can be converted into a standard currency (by convention US dollars) at an appropriate rate (usually the official rate of exchange).