Gross domestic product has become one of the most criticized numbers in economics. It measures the value of goods and services produced by an economy, but critics often point out that it does not directly measure happiness, inequality, environmental quality or many other aspects of human welfare.
Economist Jesus Felipe believes the criticism can go too far.
Felipe, Distinguished Professor at the Carlos L. Tiu School of Economics of De La Salle University, discusses the issue in his study, Could Pope Leo XIV and Karl Marx See Eye to Eye? Comments and Questions on MAGNIFICA HUMANITAS. The paper critically examines Pope Leo XIV’s encyclical Magnifica Humanitas, particularly its views on artificial intelligence, employment, inequality, economic development and the way modern economies operate.
On many issues, Felipe shares the Pope’s concerns. But when it comes to the usefulness of GDP as a measure of development, he disagrees.
“GDP per capita is an excellent metric of development,” Felipe writes.
His argument is not that GDP captures everything that matters in life. Rather, countries with high levels of income per person also tend to perform much better on many of the basic conditions that determine material wellbeing.
This makes GDP more informative than its critics sometimes acknowledge.
Growth matters greatly for poverty
Felipe begins with the relationship between economic growth and poverty reduction.
He cites research by Dollar, Kleineberg and Kraay showing what he describes as the “central importance of economic growth for poverty reduction.” According to Felipe’s summary of their findings, incomes among the poorest two-fifths of the population tend, on average, to rise at roughly the same rate as average incomes overall.
The implication is important. If an economy grows and average income rises, poorer households generally benefit as well.
This does not mean that every period of growth distributes gains equally or that inequality disappears. It means that sustained economic growth remains a powerful way of raising material living standards.
For developing countries, the distinction matters because debates over inequality can sometimes overshadow the more basic question of whether the economy is producing enough income in the first place.
Redistribution can change how existing income is divided. But a country also needs a larger economic base if living standards are to rise substantially over time.
Felipe therefore pushes back against the tendency to treat growth and human welfare as competing objectives.
What GDP per capita can tell us
Felipe also cites more recent work by Lant Pritchett and Arthur Lewis on the relationship between GDP per capita and measures of basic material wellbeing.
He says their research considers measures that meet three conditions: they focus on necessities rather than luxuries, combine indicators from several areas of life, and use defensible methods for determining their relative importance.
Their conclusion, as Felipe summarizes it, is striking. Measures of basic human material wellbeing remain strongly associated with GDP per capita across countries.
Felipe goes further by highlighting two ideas from the research.
First, high GDP per capita appears to be “empirically sufficient” for countries to reach high levels of basic material wellbeing. Second, it appears to be “empirically necessary,” meaning countries do not generally achieve high levels of these basic outcomes without also becoming relatively prosperous.
This helps explain why GDP per capita remains so widely watched despite its limitations.
A country with much higher income per person normally has far more resources available for housing, healthcare, education, infrastructure and other necessities than a country with very low income per person.
GDP does not tell us exactly how those resources are distributed or how efficiently they are used. But it tells us something fundamental about the economic capacity available to support higher living standards.
The problem with dismissing GDP
Pope Leo XIV questions whether GDP adequately captures dimensions of life that matter to ordinary people. Felipe believes this criticism understates what the measure already tells us.
“It is not that GDP neglects aspects essential to the average well-being of people,” Felipe writes. Rather, he argues that GDP “summarizes very well how countries do in development, broadly defined.”
GDP was never designed to tell us whether people are happy or whether every citizen receives an equal share of national income. Neither does it directly determine whether a society is fair.
The question is whether those limitations make GDP a poor indicator of development.
Felipe’s answer is no because many improvements associated with development require resources. A richer economy has greater capacity to provide the goods and services that raise material living standards.
This does not make inequality irrelevant. Felipe devotes considerable attention elsewhere in the study to workers who earn close to subsistence wages and lack secure working conditions.
His argument here is narrower: concern over distribution should not lead policymakers to underestimate the importance of increasing the amount of income available to distribute.
Growth and distribution are different questions
The debate is particularly relevant for developing economies.
It is possible for GDP to rise while some households benefit far more than others. It is also possible for an economy to become wealthier without immediately solving problems such as insecure employment or inequality.
Those are legitimate reasons to look beyond GDP when assessing economic performance, but looking beyond GDP is different from abandoning it.
Felipe’s argument suggests that policymakers should treat economic growth and distribution as related but distinct challenges. An economy needs to become more productive and generate higher income, while institutions and policies influence how broadly the gains are shared.
A country that distributes income more fairly but fails to generate sustained economic growth eventually encounters limits to how much improvement redistribution alone can provide.
By contrast, rising GDP per capita expands the resources available to households, businesses and governments, creating greater potential for improvements in material living standards.
Felipe therefore offers a useful counterweight to the growing skepticism surrounding traditional economic indicators.
GDP cannot tell us everything about how well a society is doing. No single number can.
But if the objective is to understand whether a country is becoming materially richer and developing the economic capacity associated with higher living standards, Felipe’s conclusion is clear: GDP per capita still tells us a great deal.
