Limitations of GNP Measurement

Limitations of GNP Measurement

GNP is widely used to calculate the overall grwoth of the economy, howerver, this system have number of limitations. These limitations have been explained below

1.    Self Provided Services Are Not Included

GNP does not take into account self provided services, for example if you have repaired your own motorcycle, then this service will not be included because you have not paid any amount for such service.

2.    Domestic Service Are Not Included

Household services form a big portion of total services performed during the year, but this service is not included in GNP calculation. So it is more appropriate to say that GNP is only reflecting the paid services in the economy.

3.    Illegal Activities have no record

GNP also does not take into account the illegal activity, because such activities are not reported . In some countries theses service (smuggling) form a major economic activity.

4.    Vague indicator of performance

Some countries have a huge output, but have a very low living standard . Therefore some countries have started to maintain physical quality of life as performance measurement of national progress.

5.    Reflect only overall performance

GNP reflects only overall performance of the economy, and therefore does not reflect actual situation. Increase output is an indication of increase level of income of whole nation, but in fact this increased income is shared by  few families (industrialist).