GEP vs. GDP: Key Insights for a Sustainable Future

        Macroeconomics focuses on the overall economy or we can call it aggregate economy, not individual businesses, households, or industries. Business decisions require knowledge of macroeconomic factors such as interest rates, inflation, economic activity, wage rates, unemployment, productivity growth, exchange rates, and government policies. When evaluating the economy from a macroeconomic perspective, it is necessary to u (Mankiw, 2018) se indicators. These indicators should be capable of measuring the total income earned by individuals within the economy. The most suitable measure for this purpose is Gross Domestic Product (GDP).

The Gross Domestic Product (GDP) refers to the overall market value of all goods and services produced within a country's borders during a specific timeframe. It is a crucial method to determine a nation's income. The underlying assumption of GDP is that an increase in its value during a certain period implies greater opportunities for the country to attract investment capital from investors.  (Gunawan, Enrico, Satria, & Hidayat, 2023, p. 403). The concept of Gross Domestic Product (GDP) involves measuring and determining the value of results across various sectors, including the value of production processes, income, and national expenditure within a country's economy (Gunawan, Enrico, Satria, & Hidayat, 2023, p. 404). GDP accounts for all final products produced by both national and foreign individuals or companies within a country's territory over a specific period, usually one year. GDP is considered the most effective economic indicator for evaluating a country's economic development, serving as the primary macro measurement of a nation's condition. Comparisons between countries can generally be made by examining their national income, which provides an illustration of their overall conditions. The World Bank determines a country's status as either developed or developing based on the size of its GDP, with a country's GDP equaling the total expenditure on goods and services within its economy.

The current method of measuring economic health may not provide a complete picture. Typically, when we discuss a nation's economic success, we mention gross domestic product (GDP), which is determined by the value of goods and services within an economy. However, GDP doesn't account for the various advantages that nature provides to society and the economy, such as access to clean water and protection against climate-related risks (Natural Capital Project Stanford University, 2023). Due to this gap, new formulas or metrics are needed to measure it. This is where Gross Ecosystem Product (GEP) comes in. This system has undergone development and testing on a range of scales, from city to national, in China. It has been officially adopted by the UN Statistical Commission as a component of the UN-SEEA ecosystem accounting system. The project was a collaboration between NatCap Stanford, NatCap University of Minnesota, and the Chinese Academy of Sciences, with funding provided by the Chinese Academy of Sciences and the Stanford gift fund (Natural Capital Project Stanford University, 2023).

GEP refers to the total value of ecosystem goods and services provided to enhance human well-being in a specific region each year, which could be a district, province, or country. In this case, ecosystem services can be classified into material services (nature's contribution to food supply, water supply, etc.), regulatory services (nature's contribution to carbon absorption, flood mitigation, soil retention, sandstorm prevention, etc.), and services. non-material (nature's contribution to ecotourism, nature experiences for mental health, and so on) (Ouyang, et al., 2020, p. 14594). GEP tracks nature's important contributions to society. Not only that, GEP can also provide information related to investment and how to secure it. GEP can also help evaluate leaders' performance and policies (International Union for Conservation of Nature (IUCN), 2019).

The concept of Gross Ecosystem Product (GEP) has been successfully put into practice in China, specifically in Qinghai Province. Known as the "water tower of Asia," Qinghai Province is situated at the source of the Mekong, Yangtze, and Yellow Rivers, which are important water supplies for many provinces in China and other Southeast Asian countries. However, if only GDP is used as the calculation, Qinghai Province does not receive credit for its natural wealth, which provides water supplies to most of China's provinces. This is because GDP does not reflect the value of these natural resources. By using GEP as a new metric, we can appreciate the worth of essential ecosystem services, such as water supply (as seen in the case study of Qinghai Province as a water supplier).For example, downstream communities that benefit from Qinghai's water supplies tend to live in provinces with higher GDP (especially in urban areas) but are often poorer in terms of GEP. To address this, leaders in China have proposed an "environmental compensation" program that would allow downstream water users to pay for the protection of upstream water sources. Such programs can help reduce poverty while ensuring that crucial ecosystem benefits continue to flow (Natural Capital Project Stanford University : Cafasso, Sarah, 2020).

In order to achieve sustainable development, it is crucial to go beyond traditional economic measures like gross domestic product (GDP) and gross ecosystem product. This is because some ecosystem services are utilized as inputs for goods and services that are included in GDP. However, there is a significant overlap or discrepancy between GEP and GDP. It is not possible to simply combine these two different indicators. Essentially, GEP calculates the value of natural inputs but not the entire value of all final goods and services within an economy. In contrast, GDP includes many final goods and services that are not accounted for in GEP (Ouyang, et al., 2020, p. 14596).

Combining GDP and GEP calculations would be a good idea to consider. The concept of GEP has the potential to aid in achieving sustainable development goals. By incorporating the value of ecosystem services and trends in ecosystem assets into decision-making and investment planning, GEP can help achieve important social objectives such as sustainable development. Recent experience in Qinhai Province has demonstrated that providing information about ecosystem assets and their associated goods and services to government leaders has facilitated progress towards sustainable development (Ouyang, et al., 2020, p. 14596). It is important to note that GEP alone cannot be considered superior to GDP in terms of sustainable development. However, if GEP and GDP are used in conjunction, they can provide a comprehensive view of a country's economic growth, making it the ideal solution for sustainable development.

References

 

Gunawan, H., Enrico, A. Y., Satria, A. B., & Hidayat, T. F. (2023). Analisis pengaruh Gross Domestik Product (GDP) dan Suku Bunga (SB) terhadap Foreign Direct Investment (FDI) pada periode tahun 2012-2019. Jurnal Ilmiah Wahana Pendidikan, 403.

International Union for Conservation of Nature (IUCN). (2019, 11). Gross Ecosystem Product. IUCN China.

Natural Capital Project Stanford University : Cafasso, Sarah. (2020, 06 08). Accounting for Nature in Economies. New Release, p. 1.

Natural Capital Project Stanford University. (2023). Gross Ecosystem Product (GEP) (China).

Ouyang, Z., Song, C., Zheng, H., Polasky, S., Xiao, Y., Baterman, I. J., . . . Daily, G. C. (2020). Using Gross Ecosystem Product (GEP) to Value Nature in Decision Making. JSTOR, 14596.