IS GDP AN APPROPRIATE INDICATOR OF SUSTAINABLE ECONOMIC DEVELOPMENT?

The System of National Accounts (SNA 1993, ESA 1995) as an internationally agreed framework for the compilation and presentation of economic data defines gross domestic product (GDP) as an overall indicator of economic growth. Accounting for the environment’s contribution to the economy and human welfare was considered extremely difficult, requiring the resolution of intractable methodological problems and the generation of a large amount of data. Besides environmental aspects, GDP also fails to fully explain differences in overall satisfaction of the citizens and perception of quality of life and well-being. One of the most ambitious efforts to reform the calculation of an indicator of economic welfare is presented in Daly and Cobb (1989). They propose a GDP substitute, the Index of Sustainable Economic Welfare (ISEW) which, apart from the conventional national accounts data includes environmental variables and income distribution indicators. In this paper we apply the ISEW methodology to the Croatian economy and construct the index of sustainable economic welfare for Croatia in the period 2000-2010. Index of Sustainable Economic Welfare constructed for Croatia has not recorded signifi cant differences in comparison to GDP trends. Until 2003, the ISEW index was below GDP and personal consumption. In period 2003-2006 ISEW recorded higher levels than GDP while in 2007 and 2008 both indices are moving in line. During the recession period, overall welfare has not decreased substantially because GDP drop is partially compensated by non-monetary activities with positive impact on household wellbeing.