What can be done to eliminate the problems of measuring national income in developing countries?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The only real way to eliminate the problems of measuring national income in developing countries is for those countries to do a better job of making sure that all of the transactions in their economy are done on an official basis.  In other words, the countries have to keep better records--they have to have good records concerning the number of businesses, how much they pay their employees, how much they produce, etc.

The reason for this is that these sorts of statistics are the ones that are used to measure national income.  If too much of the national economy is conducted off the books or on a cash basis, the country's government can not have any idea as to what its national income is; it also cannot really tax the transactions since they are not on the official economy.

National income is measured by adding

  • compensation of employees
  • net interest
  • rental incomes
  • corporate profits
  • proprietors' incomes

If too much of the economy is conducted off the books, the government will not have accurate figures for most of these measures.  Because of this, better record keeping is essential to eliminate the problems of measuring national income.

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