[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

International Perspective
WHAT GETS MEASURED IN THE GDP?
In the United States, illegal activity is not counted as part of
GDP. If we are trying to get a measure of market economic
activity, excluding occupations like the drug trade means
that GDP misses one type of output. For the United States,
this omission is unlikely to have a major impact on the usefulness
of GDP statistics. But if illegal activity is a major
source of income in a given country, then failing to count
that income as part of GDP may give a misleading picture of
its economy.
Colombia provides a case in point. Colombia is a major
exporter of illegal drugs. Drugs are grown, processed, and
transported. Each of these steps represents economic activity,
yet the incomes generated directly by the trade in illegal
drugs have been excluded from its GDP.
The Colombian government has begun to add income
earned from illegal drug crops to GDP. It is estimated that
treating drug crops like legal crops in this calculation may add
as much as 1 percent to Colombia’s GDP. The drug trade
involves much more than just growing the crops—processing
and transporting them are also huge businesses. But as of now,
those aspects are omitted from Colombia’s GDP. Including
them would increase the drug trade’s impact on the figures.
While adding even part of the value of drug-related income
will raise Colombia’s reported GDP, the new figure does not
mean the country’s income is any higher—it simply means
that more of it is being counted in the official statistics. The
change does highlight an important point, however. Often the
exact definition of a statistic changes over time, or the methods
used to collect the data change. Variables that have the
same name in two different countries may not measure quite
the same thing. We must keep these possible variations in mind
when making international comparisons of GDP, especially
For sound economic reasons, Colombia includes the illegal coca
leaf crop in its calculation of GDP.
when comparing economies that are quite different. If a particular
type of economic activity—say, bread making—is done
through markets in one economy and at home in another, bread
consumption as measured in GDP will be higher in the former.
Robert Summers and Alan Heston carried out one of the
best attempts to construct consistent international data on
GDP. Their data, known as the Penn World Table, are available
on the Web at http://pwt.econ.upenn.edu/.
represent only a slowdown in real growth; sometimes output actually falls. The dips
in real GDP from 1971 to 1973, from 1980 to 1981, from 1990 to 1991, and in 2001 represent
periods when U.S. economic output actually declined. A strong upward fluctuation
is called a boom, and a downward one is called a recession. A severe recession
is called a depression. The last depression, called the Great Depression because of
its length and depth, began in 1929. The economy did not fully recover until World
War II. While there is no technical definition of a boom, a recession is generally said
MEASURING OUTPUT AND GROWTH ∂ 495