Table 1: Selected indicators for Norway, Costa Rica, and Saudi Arabia, 2022/2023 (or latest available)
| Indicator | Norway | Costa Rica | Saudi Arabia |
|---|---|---|---|
| GDP (PPP $bn) | 420.5 | 125.2 | 1,750.8 |
| Population (millions) | 5.4 | 5.2 | 36.4 |
| Mean years of schooling | 13.0 | 8.8 | 11.3 |
| Life expectancy at birth (years) | 83.2 | 80.8 | 75.4 |
| Gini coefficient (0 = perfect equality) | 0.26 | 0.49 | 0.45 |
| CO2\text{CO}_2CO2 emissions (tonnes per capita) | 7.2 | 1.6 | 15.3 |
Footnote: PPP = Purchasing Power Parity.
Source: UNDP and World Bank database
Traditional macroeconomic consensus posits that expanding real Gross Domestic Product (GDP) is the most robust vehicle for societal progress. When an economy experiences sustained growth in real GDP, it experiences an expansion in aggregate demand and production capacity, boosting employment and household disposable incomes.
Furthermore, economic growth generates a substantial "fiscal dividend" for governments. Increased economic activity automatically boosts tax receipts from income tax, corporation tax, and indirect taxes such as Value Added Tax (VAT), without the need to raise tax rates. These revenues can then be reinvested in key public goods and services—such as national infrastructure, advanced healthcare systems, and education—which directly enhance the non-material standard of living of the population.
Despite its utility, an increasing number of economists argue that GDP is a flawed proxy for social welfare. It registers defensive expenditures, such as rebuilding after natural disasters or spending on security, as positive growth, while ignoring non-market activity, leisure time, and unpaid care work. Most critically, GDP fails to account for the depletion of natural capital or the unequal distribution of gains.
For instance, Costa Rica demonstrates that high living standards and high life expectancy (80.8 years) can be achieved with a relatively modest GDP compared to oil-rich nations. Conversely, Saudi Arabia boasts a massive GDP of 1,750.8bn(PPP)butexhibitsahigherGinicoefficient(0.45),indicatingthateconomicgainsarehighlyunequal,andhasaveryhighcarbonfootprintof15.3tonnesof1,750.8bn (PPP) but exhibits a higher Gini coefficient (0.45), indicating that economic gains are highly unequal, and has a very high carbon footprint of 15.3 tonnes of 1,750.8bn(PPP)butexhibitsahigherGinicoefficient(0.45),indicatingthateconomicgainsarehighlyunequal,andhasaveryhighcarbonfootprintof15.3tonnesof\text{CO}_2$ per capita. To address these deficiencies, alternative frameworks like the Green GDP and the Happy Planet Index (HPI) have been advocated to prioritize environmental conservation and psychological well-being over pure economic output.
Extract B states that economic growth generates a substantial 'fiscal dividend' that can be 'reinvested in key public goods and services... which directly enhance the non-material standard of living'.
Using the data in the extracts and your knowledge of economics, assess the view that targeting growth in real GDP is the most effective policy for governments to improve the living standards of their citizens.
