A country’s GDP is a measure of its economic output. It is calculated as total final private and government spending on goods and services, minus intermediate consumption (which includes purchases of raw materials) and minus net exports. Other components of GDP include investment expenditures by a nation’s government and compensation of employees.
The ranking of nations by GDP has shifted considerably over time, with the United States having the largest economy since around 1916, Japan becoming the second largest after World War II and China moving up from ninth place in 1978 to second place following market reforms in 2010. GDP is a widely used statistic, followed closely by economists and investors, and is one of the most commonly discussed measures of a nation’s economic health.
The rapid increase in global GDP is a remarkable achievement, but a high GDP alone cannot guarantee human well-being. The focus on material production can lead to unsustainable economic growth, such as through resource extraction or the use of chemicals that harm human health. GDP also fails to capture certain phenomena impacting citizens’ well-being, such as traffic jams or pollution. Alternative economic indicators such as the Human Development Index and Doughnut Economics offer a more holistic view of a country’s economy.