Practise evaluating GDP/GNI comparisons by testing price, population and data adjustments alongside distribution and quality-of-life evidence.
Sources for use with Section C
The economy of Ireland
Figure 1 Annual real GDP growth rate (%), 2013 to 2022
Figure 2 Annual real GDP growth rate (%) for selected countries, 2022
Extract A Limitations of using GDP Many economists argue that Ireland’s high rate of economic growth for 2022 is not accurate. They claim that Ireland only experiences high rates of economic growth because international companies take advantage of the country’s low corporation tax rate of 12.5%. This tax rate is lower than the corporation tax rates of many other 5 European countries and has attracted over 1 500 international companies. Some of these companies are so large that the country’s GDP figures may be overstated. For example, Apple Inc., the world’s largest technology company, moved its European base to Ireland in 2015. This resulted in a significant increase in the country’s rate of economic growth. In 2018 the global sales of Apple iPhones accounted for 25% of the 10 GDP growth rate in Ireland. In 2022 there were large fluctuations in Ireland’s industrial production data. It rose or fell by more than 10% from one month to the next. This led to Ireland’s central bank reviewing how it calculated seasonal adjustments when measuring the country’s GDP. Economists suggested that Ireland’s GDP data was meaningless as a guide to how the 15 economy is performing. For example, they argued that using GDP can mislead analysis of matters related to income inequality and the environment. However, Ireland’s central bank defended this measurement of the country’s rate of economic growth for 2022. It indicated that the activities of international companies had a positive impact on living standards in Ireland. Between 2015 and 2022 employment 20 increased from 2.06 million to 2.55 million. This contributed to a significant increase in government revenues from income tax and corporation tax. In 2022 the country’s corporation tax receipts rose to an all-time high of €22.6 billion. Ireland’s central bank also uses Gross National Income (GNI) as an alternative measure of economic growth. This measure removes the impact of international companies and 25 provides a better understanding of domestic demand. According to the GNI measure, Ireland’s rate of economic growth was much lower at 5.9% in 2022. In 2023 Ireland’s rate of economic growth was expected to decrease to just 4%, as measured by GDP. This is as a result of a high rate of inflation, rising interest rates and the weakening state of the global economy. Forecasts also suggest that between 2024 30 and 2027, GDP is likely to grow by an average of 3.5% per year.
With reference to Figure 2, Extract A and your own knowledge, discuss the limitations of using GDP to compare living standards between countries.