Why is GDP overstated in terms of the environment?
GDP stands for gross domestic product. GDP refers to the cost of goods and services at the final stage of the economical year. GDP is not the only way of measuring the economy of the country and its progress. If environment is taken into consideration while calculating the conventional GDP, it would be low and the growth rate in GDP will also be low.
The growth rate of environmentally unadjusted GDP is observed to higher then the GDP adjusted with the factors responsible for the managing the environment. If the damage to the environment is not checked properly, the environmental problems influencing GDP will grow periodically and the GDP will get reduced. As the responsibility of the people towards the environment rises and awareness of environment is felt, then the environment adjusted GDP will rise. As the consciousness for environment increases, the GDP will not be affected due to the cost incurred towards environmental damage. Hence the environmentally adjusted GDP will be higher than the conventional measure of GDP.
The development of the country depends on the natural resources in it. If the environment is degrading, then there will be loss in the country’s economy. As the funds diverted for the environmental protection makes the growth of economy deteriorated, the adjusted GDP is overstated in terms of environment. The reason for the GDP in terms of environment to be overstated or exaggerated is due to the funds spent for environmental protection. The adjusted GDP will be higher than the conventional GDP when the environmental destruction decreases proportionately. The GDP growth rate adjusted with environment on the basis of less destruction will be comparatively higher than the growth rate based on more destruction of the environment. One of the ways to stop the degradation process is to cease using environmentally damaging products. The protection of environment can be done by educating the people, taking right steps by the government in right time and so on. Environmental protection will certainly help in raising the economy.
If the environmentally adjusted GDP is lower than the conventional one, it happens when the environmental degradation is proportionately higher.