Why should GDP be relevant to the true health of a country's economy ?

Question

Meaning, why should Multi-nationals who participate more overseas be counted into the rating of the true health of a nations economy?

Answer 1

GDP refers to the value of activity taking place within national borders, while GNP refers to the value of activity taking place by domestic entities. Thus, MNC activity overseas would be counted in GNP but not GDP, while foreign MNC activity in the U.S. would be counted in GDP but not in GNP.

Both are considered relevant measures, and they tend to be close to one another though not equivalent; GDP is used more for the sake of convention, but also because the direct effects upon American households are more closely felt by activity included in GDP to the exclusion of GNP activity. Ie, if the French firm Firaxis employs 200 salespeople in Chicago, these are wages that benefit U.S. households and hence are included in GDP. If GM's plant in Canada produces 100 new Yukon Denali Sport trucks, these count as GNP but do not directly impact American households (particularly since GM Canada owns the facilities in Ontario and Windsor; the benefit to GMNA, the overarching entity, accrues primarily in the form of cash transfers for licensing rights, etc.; these cash transfers are counted in GDP, but not the sale of the actual units).

I'm not entirely certain on the details, but these are the INTENT of GDP. The accounting does get a bit fuzzy on some particulars,. but the short answer is that whatever describes American activity best is what is used.

Answer 2

GDP is a measure of the economic production that occurs within a country's borders. That is obviously very relevant, and its far better than some subjective opinion poll.

When Toyota sells a pick-up truck that was manufactured in Texas, that money and that output is just as real and significant here in the US as if some US company made something in Idaho. Doesn't matter that Toyota is based in Japan. To not count Toyota's output would be to ignore real numbers that should be counted -- that activity involves land and labor and capital right there in Texas, you can't ignore it and still expect to make any sense of economic activity.