Discuss the problems for a developing country of measuring its GNP and interpreting these statistics.

Most countries use Gross National Product (GNP) as an indication of the economic welfare of a country. However, there are numerous problems involved when calculating the GNP. This is especially true in developing countries.

The first problem that a developing country might encounter is the existing use of barter in the economy. Barter is not included in the proper records of economic activity. Therefore governments in developing countries find it hard to gather the statistics for the calculation of the GNP. It is even possible for countries to not even have proper records of economic activity. Furthermore, a developing country might lack the resources or skills required in order to collect the data needed. They may not be able to afford allocating skilled manpower and other resources to collect data. The government themselves may be incompetent or inefficient which may lead to inaccurate and unreliable measurements of the GNP.

In developing countries, non-marketed goods and illegal goods may distort the values of the GNP. Unpaid services such as housewives, self-consumed output and payment in kind lead to the inaccuracy in the GNP. Since many developing countries depend on their primary sector heavily, such as farming, include goods that are kept for subsistence purposes. Such goods are not recorded in the GNP statistics.

Even if the GNP statistics were accurate, there is a problem faced with interpreting these figures. It is still hard to reflect the standard of living of a country. The standard of living is also affected by other factors such as political or social influences, which are not accounted for in estimates of per capita income. The figures of per capita income may not be accurate due to reasons like lack of skilled manpower and arbitrary definitions of items that is included in the collection of data. The amount of working hours of a country may influence the standard of living of a country. For example, even if the GNP in Country A is high, the hours of work may be long and entitled to short holidays. This means that the standard of living is relatively low even if the GNP is high. There is also the issue of unequal income distribution. In certain developing countries, although the GNP is high the drastic difference in income distribution may reflect a low standard of living. An instance would be Saudi Arabia. The GNP is high only because of the few rich oil-sheiks while the rest of the country is poor.

In conclusion, developing countries have trouble in collecting the data needed and calculating the GNP. This could be due to the lack of resources, skilled manpower and an incompetent government. This may lead the value of the GNP calculated to be inaccurate. Even if the GNP was accurate, there are issues in interpreting the value. It is usually used to compare the standard of living between countries. However, it is evident that the standards of living in countries are affected by other factors. The GNP of a poorer country may be undervalued or a high GNP may not reflect a high standard of living due to the drastic inequality in distribution of income. This shows the GNP to be a poor indication of standard of living in a country.