CEPII's Well Being Indicator
Although economists have long stressed the limitations of using GDP to evaluate standards of living, the debate was recently reignited by the publication of the Stiglitz report. The CEPII has proposed to calculate an indicator for the year 2009 and 34 countries incorporating certain social data items in terms of income equivalents.
By Michel Fouquin
Facts & Figures
Although economists have long stressed the limitations of using GDP to evaluate standards of living, the debate was recently reignited by the publication of the Stiglitz report. The CEPII has proposed to calculate an indicator for the year 2009 and 34 countries incorporating certain social data items in terms of income equivalents, such as leisure time, poverty associated with unemployment, longevity and size of households; this indicator takes also account of inequalities, depletion of natural resources, deterioration of the environment and consumption of fixed capital.
Aside from the impact of family size which is the most important, the second most important correction takes account of internal inequalities. By virtue of its very construction, this correction is negative for all countries. It is especially pronounced for highly unequal emerging countries: Brazil (correction equivalent to -53% of GNI/inhab.), Mexico (–48%), India (–43%), the Russian Federation (–43%) and China (–40%). It also has a negative effect on Anglo-Saxon countries, particularly the US (-33%). At the other end of the scale, the thirteen countries with corrections under 20% include Japan (-13%), France (-16%) the Czech Republic, Slovakia and the Scandinavian countries. (graph)
Aside from the impact of family size which is the most important, the second most important correction takes account of internal inequalities. By virtue of its very construction, this correction is negative for all countries. It is especially pronounced for highly unequal emerging countries: Brazil (correction equivalent to -53% of GNI/inhab.), Mexico (–48%), India (–43%), the Russian Federation (–43%) and China (–40%). It also has a negative effect on Anglo-Saxon countries, particularly the US (-33%). At the other end of the scale, the thirteen countries with corrections under 20% include Japan (-13%), France (-16%) the Czech Republic, Slovakia and the Scandinavian countries. (graph)
Correction of income per capita by an inequality factor
(as a % of GNI/inhab.)
Source: World Bank. Authors’ calculations.- Greenhouse gas emissions introduce a cost equivalent to only 1.6% of GNI on average for all countries considered. Of course, had we adopted a higher carbon value, the picture would be different. Account should also be taken of other forms of environmental deterioration, although these are typically difficult to evaluate; here too, probably, corrections would be larger in emerging countries than in developed countries.
- The depletion of natural resources results in an average drop of 3.5% of GNI.
- Accounting for unemployment (over and above the loss of production already taken into account in GDP) represents 5% of GNI at most.
- Fixed capital consumption has similar effects across countries, averaging out at 14.9% of GNI. Emerging countries such as India and China typically have more recent capital, whereas the countries of Central Europe and Japan have significant stocks of ageing capital.
- Health, addressed from the perspective of life expectancy, operates favourably in Japan, used as the reference here, and in Northern European countries. It operates very unfavourably in respect of emerging countries, particularly Russia, which is beset by serious public health issues.
- Leisure activities give a considerable advantage to Northern European countries, whereas Anglo-Saxon countries and emerging countries have much less free time on average.
Note:In the cases of China and India, the World Bank's data concerns the distribution of expenditures on consumption and not that, more unequal, of incomes. Therefore we have corrected the Indian inequality indicator by data from "Notes on Inequality and Poverty" by Surjit S. Bhalla prepared for the NBER conference from the 10th to 13th January 2009, and for China from Sutherland and Yao, "Income inequality in China over 30 Years of reforms", Cambridge Journal of Regions, February,1 2011.
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