What is 'Genuine Progress Indicator (GPI)'

A genuine progress indicator (GPI) is a metric used to measure the economic growth of a country. It is often considered an alternative metric to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others). The GPI nets the positive and negative results of economic growth to examine whether or not it has benefited people overall.

BREAKING DOWN 'Genuine Progress Indicator (GPI)'

Genuine Progress Indicator is an attempt to measure whether the environmental impact and social costs of economic production and consumption in a country are negative or positive factors in overall health and well-being.

The GPI metric was developed out of the theories of green economics (which sees the economic market as a piece within a ecosystem). Proponents of the GPI see it as a better measure of the sustainability of an economy when compared to the GDP measure. Since 1995, the GPI indicator has grown in stature and is used in Canada and the United States. However, both these countries still report their economic information in GDP to remain in line with the more widespread practice.

Genuine Progress Indicator (GPI) vs. Gross Domestic Product (GDP)

GDP increases twice when pollution is created – once upon creation (as a side-effect of some valuable process) and again when the pollution is cleaned up. By contrast, GPI counts the initial pollution as a loss rather than a gain, generally equal to the amount it will cost to clean up later plus the cost of any negative impact the pollution will have in the mean time. Quantifying costs and benefits of these environmental and social externalities is a indeed a difficult task.

By accounting for the costs borne by the society as a whole to repair or control pollution and poverty, GPI balances GDP spending against external costs. GPI advocates claim that it can more reliably measure economic progress, as it distinguishes between the overall "shift in the 'value basis' of a product, adding its ecological impacts into the equation." 

The relationship between GDP and GPI mimics the relationship between the gross profit and net profit of a company. The net profit is the gross profit minus the costs incurred, while the GPI is the GDP (value of all goods and services produced) minus the environmental and social costs. Accordingly, the GPI will be zero if the financial costs of poverty and pollution equal the financial gains in production of goods and services, all other factors being constant.

RELATED TERMS
  1. Stock Market Capitalization To ...

    The stock market capitalization to GDP ratio is used to determine ...
  2. Inflationary Gap

    An inflationary gap is a macroeconomic condition describing the ...
  3. Per Capita GDP

    Per capita GDP is the measure of a country's output that shows ...
  4. Productivity And Costs

    Productivity and costs refers to an economic data set that measures ...
  5. True Cost Economics

    True cost economics is an economic model that seeks to include ...
  6. Economics

    Economics is a social science concerned with the production, ...
Related Articles
  1. Insights

    What’s the Difference Between GDP and GPI?

    For a citizen dealing with the realities of daily life, gross domestic product can be a misleading figure. That’s why the genuine progress indicator was created.
  2. Insights

    The GDP and its Importance

    GDP is an accurate indication of an economy's size. Few data points can match the GDP and its growth rate's conciseness.
  3. Investing

    Something Gross in GDP

    GDP is used to gauge the strength of the economy, but what is it actually measuring?
  4. Insights

    The World Bank's All-Important World Development Indicators (WDI)

    The World Development Indicators are the world's economic scorecards: they evaluate where nearly every country stands and how far it has yet to go.
  5. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  6. Insights

    Healthiest And Safest European Economies

    Economic indicators are to economists what symptoms are to doctors: signs of the relative well-being of the patient.
  7. Investing

    Can Global Investors Profit From GDP Watching?

    GDP growth is not necessarily a solid indicator of stock market returns in emerging markets. Find out what to watch instead.
  8. Investing

    The Big Play In Pollution Control

    As the world grapples with growing pollution and environmental concerns, the mitigation industry stands to profit. For investors, this often ignored subsector of cleantech could be the way to ...
  9. Insights

    One Reason Jobs Shrink: Superstar Companies

    Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
RELATED FAQS
  1. How can I use the rule of 70 to estimate a country's GDP growth?

    Find out about the rule of 70, what it is used for and how to use it to determine the number of years a country's GDP takes ... Read Answer >>
  2. How does gross domestic product (GDP) affect standard of living?

    Find out how gross domestic product is used to measure standard of living. Find out which alternative metrics rely on GDP ... Read Answer >>
  3. What is the correlation between money supply and GDP?

    Read about the two-way correlation between the total amount of money circulating in the economy and gross domestic product, ... Read Answer >>
  4. What impact does the balance of trade have on GDP calculations?

    Read about the impact of the balance of trade on a nation's gross domestic product, and why each of these figures can be ... Read Answer >>
  5. Which developed country has the most debt?

    Discover the nations that have the largest net government debt, viewed in terms of absolute dollar amount or as a percentage ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center