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Asian Development Review

First developed in the 1930s by a team of researchers led by the economist Simon Kuznets, the gross domestic product (GDP) measure was conceived in response to the recognition that limited and fragmented economic information posed a challenge to policymaking during the Great Depression.1 As a measure of aggregate economic production, GDP was not designed to measure social welfare, take into account environmental costs of production, give a sense of how income is distributed, or indicate whether people live healthy and contented lives. GDP also says nothing about how the way we choose to produce today affects our ability to produce tomorrow. Nonetheless, production measures such as GDP are often used as an indicator of progress and well-being. Nordhaus and Tobin undertook one of the first and most influential studies to point out the limitations of the gross national product (GNP) as a measure of progress and to present an alternative measure of economic welfare.2 However, policymakers are not always driven by a “blind obeisance to aggregate material ‘progress,‘“3 as alleged by some GDP critics, when they choose to maximize economic growth at the expense of its possible damaging side effects. In fact, a growing GDP has been shown to have the potential of expanding employment opportunities and reducing poverty and inequality.