October is the month in which organizations large and small begin their strategic planning activities for the next year. For companies expanding overseas or looking to increase their financial performance in specific industries “Gross Domestic Product” or GDP, is a frequently used metric measure. GDP is broadly defined as the total value of production within a country’s boundaries. GDP is a useful measure of a country’s economic health, but there are some caveats to consider, particularly when thinking about foreign direct investment (FDI) in specific countries. Using only the general measure of GDP may not be as accurate a measure of economic health as would be uncovered in more substantial research.
For example, GDP is not designed to measure economic inequality, living standards, health, environmental pollution, and home worker output. GDP also does not measure whether or not the output is produced by a small number of wealthy individuals or produced by the entire population’s efforts. GDP does not tell you if the output is the result of multiple industries or the result of only a few industries or natural resources.
For better strategic planning consider supplementing the GDP measure to include alternative GDP numbers such as Real GDP (GDP + Price Index); Net Domestic Product (NDP) (GDP-capital consumption allowance). There are many macroeconomic ways to measure economic information, these are just two.
An excellent report to access is the 2015 Trade and Development Report from the United Nations Council on Trade and Economic Development. We use this report at Birchtree Global, coupled with others to look at FDI trends worldwide. It can be accessed from: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1358. The report notes recovery in developed countries and challenges in developing/transition economies suggest the global crisis lingers. The main concern is “insufficient global demand, combined with financial fragility and instability, and growing inequality.” Early demand from our clients suggests continued expansion into Germany, China, India, Mexico, Ireland, the UK, Vietnam, Singapore, and Canada, coupled with growing interest in Cuba as a potential destination. Cuba, for example, is one country that would use a variation of measures in addition to GDP to account for economic and social progress.
For additional information consider the following resources:
Chamberlin, G. (2011). Gross domestic product, real income and economic welfare. Economic & Labour Market Review, 5(5), 5-25.
The Economist. (2015, October 13). Money Talks: The GDP Conundrum. The Economist.com.
The United Nationals Council on Trade and Development (UNCTAD). Multiple resources. (http://unctad.org/en/Pages/Publications.aspx)