(Photo: iStock)
(Photo: iStock)

Growth statistics need a digital makeover

Current methods of estimating GDP ignore the true welfare gains from the internet economy, says new study

With the ‘internet economy’ becoming increasingly entwined with the traditional economy, analysts across countries have attempted to accurately capture its full contribution in growth statistics. According to recent estimates, India’s digital economy generates about $200 billion of economic value annually, which accounted for nearly 8% of India’s gross value add in 2017–18. But the contribution of the internet economy to GDP may actually be seriously understated, suggests new research.

The research authored by Erik Brynjolfsson of MIT's Sloan School of Management and others suggests that GDP, as estimated currently, falls short because it doesn’t include the value of free online goods such as social media, search engines, maps, and videos. The study tries to estimate the dollar value of such free digital goods used by consumers and prepares a new-measure called “GDP-B" or “Beyond GDP".

For instance, the study values Facebook at at-least $40 per month for users based on a series of surveys. Including the welfare gains from Facebook would have added between 0.05 and 0.11 percentage points to GDP-B growth per year in the US, the authors argue.

To arrive at these valuations, they relied on three large-scale online surveys in which consumers were asked to quote a price for the free online services they consume. For instance, they were asked to quote a price that would compensate for losing access to a free internet product.

Similarly, the authors attempt to incorporate the welfare gains from the introduction of new goods which have come about due to the existence of the internet, such as smartphones.

According to the authors, in an increasingly digital world, these type of measures could account for the new type of goods the digital economy creates and improve GDP calculations.

Also Read: GDP-B: Accounting for the value of new and free goods in the digital economy

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