A Note on: Alternative Quantitative Measurements of Growth and Welfare for Policy Analysis

Measuring development, growth and welfare is an important issue in normative and positive economics.The issue is more critical in developing economies where a good statistical indicator of income, livingstandard or poverty is crucial for decision-makers in corporate, government, non-government andinternational organizations in their for-profit or non-profit plans to promote business and trade, enhancegrowth and welfare, and reduce poverty in needy countries. In the current literature on developmenteconomics, trade liberalization for example has been encouraged through official negotiations andagreements and supported by the extensive technical programs of the International Monetary Fund, theWorld Bank, the Asian Development Bank or the World Trade Organisation and with substantial humanand financial resources, to increase growth and raise income or reduce poverty in open but low-incomeeconomies.Several quantitative measurements in this context have been adopted to record the effects of thisliberalization. The issue is that these different measurements can produce different outcomes castingtherefore confusion on the impact of trade liberalization and the evaluation of the effectiveness ofeconomic and trade policy (Winters 2007). This note is a simple demonstration of the sources of thedifference in two popular indicators of growth and welfare, namely the rates of change of the GDP andGDP per head (called y and yh respectively) and their important policy implications. It can be regarded asa technical guide to the use of alternative income measurements for scholarly and practical policyanalysis. The note also has some pedagogical and practical value, and its results can be applied to otherareas of economic and non-economic activity. These include measurements of productivity, investment,consumption, inflation, education expenditure, labour skills, profitability, taxation, finance, bankruptcy,or other fields of quantitative investigation where scaled and ratio measurements are conceptuallyrequired.