Thursday, June 20, 2024
BusinessEconomics association plans to replace GDP with new measurement

Economics association plans to replace GDP with new measurement

The Ethiopian Economics Association (EEA) introduces a new initiative to adopt new indices for measuring the economy. It will replace existing methodologies such as GDP and per capita income measurement. The new standard will be based on sub-indices in the aspects of health, economics, and democratization, among others.

The project will conclude in the development of two economic measuring standards over the following three years. The first is the Ethiopian multidimensional index (EDI), which will encompass Ethiopia’s regional states as well as universal well-being. The EEA adopts the indices as an autonomous agency, and the Ethiopian government may or may not formally embrace the standards.

The second standard, known as the multidimensional development index (MDI), will include data from 130 developing nations. Once all of the standards and indexes are in place, the EEA will publish the EDI and MDI reports every two years. The projects will cost USD2.2 million. There will be 426 leading experts and assessors from each sector involved.

EEA has begun mobilizing resources from numerous partners both locally and internationally in order to acquire the financing. African development bank, Irish assistance organization, and other partners took part in its inaugural engagement with partners this week. After that, EEA intends to collaborate with Ethiopia’s Ministry of Finance, Ministry of Planning and Development, and other local and international organizations.

According to Amdissa Teshome (PhD), president of the EEA, the current widely used indicator, GDP, has limitations. “There are indicators that have not been included in the GDP standard. Therefore, it has to prepare a multidimensional indicator that serves both the national and international communities. Considering such gaps, the association has drafted a proposal called indexing multidimensional development. For instance, GDP does not capture the informal economy, which feeds millions of people.”

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Degye Goshu (PhD), a research program director at EEA, indicated that since measuring development has been an issue both in Ethiopia and the rest of the world and it is vital to prepare MDI, especially for countries that are labeled as transitional economies.

Tadele Ferede (PhD), a senior economist and lecturer at Addis Ababa University’s Development of Economics, said that the program will have four key features. “Every country wishes to achieve inclusive development, and inclusiveness consists of multiple dimensions. The project by the EEA recognizes multiple aspects of development and the need to monitor and reward developments through a unified index,” he said.

The project’s multidimensional nature is one of its features. Development is not only about economic growth; it also involves changing human beings, argue the experts. Rather, it is all about economics, social issues, governance, the environment, and others.

There are many indexes to measure one particular development dimension, such as the human development index, the environment performance index, and the gender index, but they are separated. The MDI will recognize that development is not divisible and look at it in a comprehensive manner. Moreover, the index will highlight where countries are progressing or retarding on a long trajectory, according to Tadele.

Tewodros Mekonen (PhD), senior expert at the International Growth Center and executive member of EEA, agrees. “Existing economic measurements are limited to numbers, and this does not indicate welfare. Hence, the Multidimensional Development Index (MDI) is preferred to measure the different aspects of human wellbeing in development. It is preferred from GDP and per capita income.”

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