Productivity Versus Welfare; Or GDP Versus Weitzman's NDP
While GDP is the appropriate measure of output, I argue that Weitzman's NDP (WNDP)—nominal net domestic product deflated by the price of consumption—is the appropriate measure of welfare. Total factor productivity (TFP) growth measures the shift in the GDP frontier, and there is an analogous concept for WNDP, which I call total factor welfare (TFW) growth. I calculate and compare WNDP and GDP, and TFP and TFW, for the United States in the 1990s. I find that the acceleration of WNDP post 1995 was as great as that of GDP, even though the aggregate depreciation rate was rising.
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Document Type: Research Article
Affiliations: Centre for Economic Performance, London School of Economics
Publication date: September 1, 2004