GDP and Standards of Living Between Germany and Indonesia - Research Paper

Introduction

Gross Domestic Product (GDP) is the total output of the whole economy of a country by putting together government expenditure, total consumption investment, and net exports. Per Capita GDP is calculated by dividing the total GDP the population of the country, and hence this is what is regarded as standards of living of a nation. Standards of living are the level of material goods, wealth, comfort and necessities that are available to a particular socioeconomic class or a specific geographical location (Blum, 2011). This paper aims at assessing and comparing the GDP and the standards of living between Germany and Indonesia. Germany has one of the most developed economies in the world and hence having the high standards of living among its citizens. Indonesia is among the leading countries in fast-growing economies in the world, and therefore it is trying to recover from the financial crisis witnessed twenty years ago in Asia (Schneider, 2010). The paper aims to provide a comparison of the GDP and living standards between Germany and Indonesia regarding the GDP per capita, income inequality among the countries, Human Development Index, and unemployment figures are some of the variables used to measure the economic growth among the nations.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Examining the Economic Growth of Both Countries and How It Has Been Achieved

Germany economy is fourth- largest economy in Europe. According to IMF, the country accounted for 28% of the euro area in 2017. Germany has recorded a significant trade surplus in the economy over the years, but, in 2016 it marked the highest where it reached $310 billion. The service sector is the leading in the world with 70% of the GDP of the country while 29.1% accounts for the industry and agriculture coming in as the last one with 0.9%. Therefore in exporting the country accounts for 41% of its exports, thus, increasing its GDP (Plante, 2014).

Figure 2.0. Shows the economic growth rate between Germany and Indonesia.

The economic growth of Indonesia is rapidly increasing over the years as compared to Germany. There is a huge increase in the Indonesia economic growth over the years. The average economic growth over six years has been 5.7% while the average economic growth rate of Germany for the last six years has been 1.97% that is from 2010 to 2015. Germany performance is due to the spending of the country and regarding the exports involved. Indonesia heavily depends on the agricultural sector for its revenue while in Germany the people live according to their mean.

The consumer spending has played a significant role in driving the economic growth of the country. The country has recorded an increase in economic growth in GDP of 0.4% in 2016, which was a significant increase in 2016 from the previous years. The economy is mostly reliant on exports its products because Germany economy is mainly concerned with manufacturing hence it is the highest in Europe.

Indonesia has been the largest economy in Southeast Asia behind China. The country has been among the emerging economies in the world, and it is categorized as the newly industrialized country that is under the G-20 vital economies. Although, it has performed well in the world whereby it is considered to be the seventh largest in GDP, and among the fast emerging economies in the world, however, it falls under the world average. After overcoming the Asian financial and economic crises, Indonesia has witnessed a significant economic growth since the late 1990s. After the financial and economic crisis, the government of Indonesia took custody of a large number of the private sector assets through nonperforming bank loans. There has been a steady rise of the country's GDP per capita from $857 in 2000 to $3,603 in the year 2016. Since the financial crisis witnessed the country has recovered gradually from it, and its growth rate has increased drastically to 4-6% in the current years. Its economic growth has been enormous where the country even replaced India as one of the second-fastest-growing G-20 economies behind China in Asia. The country has dramatically worked on reducing poverty level in the country and also cutting the poverty rate in the country by half since 2000 to 2016 by 10.9%(Shahbaz, 2013).

The Indonesian government has also been announcing huge fiscal spending which is aimed at achieving the economic growth rate of the country at the rate of 7.0% every year. Indonesian governments expected a 5.2% rise by 2017 from 5.0% which was robust economic growth in 2016 (Pomerleano, 2009). While Germany has achieved its economic growth by the German individuals and companies refused to spend beyond the means, thus implying that people have mainly opted to live within their means. Also, the economic growth rate of Germany has been attributed to the massive exports from its country to the overseas. Moreover, the Germany economic growth is attributed to the job skills it possesses, labor reforms in the country and the Euro bliss.

At the beginning of the global economic crisis, Germany experienced a quick decline in its GDP where by it took place in the fourth quarter of 2008. Its GDP continued to decline to negative to 2009, but it eventually improved in 2010. Germany, therefore, led to a positive GDP in 2010. The increase in Germany's GDP, the rising inflation rates and the rebound of the DAX are factors that facilitated Germany's strong economic recovery. This had made Germany reach high levels in GDP compared to when the economic crisis hit it. The economic crises of 2008-2009 hit Indonesia but Indonesian Economy when the last economic crisis hit it it was resilient as compared to the 1997/98 economic crisis. In the first crisis the economic growth of Indonesia was at 13% while the poverty level increased rapidly but during the second global economic crisis of 2008-2009 Indonesia managed to keep a very positive economic growth rate but at some point, it declined and also the poverty level declined during the 2008-2009 global crisis.

Examining Standards of Living in Both Countries by Looking at Economic and Social Welfare

Graph 3.0. Shows a comparison of GDP per capita between Germany and Indonesia.

Germany's GDP was 44,550 us dollars in the year 2017. The GDP of the country has increased significantly over the years from 1998 to 2017 where it has risen to the current figure of 44,550 US dollars. There is an increase in the GDP contribution from the exports as the exports have increased more than the imports into the country and hence it has resulted in exports increase of 2.7% from the previous years. The Germany economy increased by 2.2% in the year 2017 from 1.9% that was witnessed in 2016 (Broadberry, 2012). Even though the GDP of Germany continues to grow, the country records an increase in poverty level in the country. This has made the charities in the country to call for better redistribution of resources in the country.

The global Multidimensional Poverty Index (MPI) in an international measure of acute poverty that captures or severe deprivations of people concerning education, health and the living standards of the people. It, therefore, assesses the poverty level of a person at the individual level. According to the reports released by major Germany charities in 2015, the country recorded 15.7 percent of the poverty rate in the country. The growth rate in the country has therefore not reached the poor population (Dustmann, 2014). The MPI of Indonesia indicates that there is still a large number of people that earn less than US$ 1 per day in the year between 1990-2015. But as the economic growth increases there is a slow reduction of the poverty level in the country recently. The poverty level in Indonesia has reduced gradually by 700 million according to United Nations data by 2010, which was a drastic change. The MPI also shows that the number of poor people in Indonesia has dropped from 47 percent in 1990 to 14 percent in 2015 thus the economic growth has played a vital role in the reduction of the poverty level in the country.

The number of people who live below poverty level in Indonesia stood at 28.51 million people in 2015 according to Indonesia's Statistics Agency (BPS), which comprises of 11.1% of the Indonesian population (Milanovic, 2011). The rise in the poverty level every year is due to high fuel and food prices whereby a large number of the poor Indonesians spend a large amount of their income on rice. A large number of the Indonesian's population live below the poverty line, and hence an increase in the prices of these commodities could increase poverty rate. The Human development index (HDI) of Indonesia in 2015 was at 0.689 points hence it was at 113th position out of the 180 countries that were published by the United Nations. The unemployment rate of Indonesia by 2017 was at 5.6 percent. This is due to the worker's decline in the agricultural sector (Suryahadi, 2012).

Comparison of the Economic Growth and Standards of Living Between Germany and Indonesia

Graph 4.0 shows a comparison of the unemployment rate between Germany and Indonesia.

OECD gives an unemployment rate as the number of unemployed people as the percentage labor which is the total number of persons that are employed plus unemployed. According to International Labor Organization, it defines the unemployed workers as those people who are currently not working but are willing and able to work to be paid. Indonesia has had a gradually drop in the unemployment rate over the years due to the increase in economic rate thus creating employment for [people over the years. Thus the unemployment rate of Indonesia dropped from 10.3% in 2006 to 5.4% in 2017. This is a clear proof that there is an increase in the standards of people thus resulting in a decrease in poverty level over the years in the country. Germany has witnessed a gradual decrease in unemployment rate whereby in 2006 the average unemployment rate was 10.0%. As the GDP growth rate increases between countries, it significantly reduces an employment rate in the country as more jobs are created thus increasing the living standards of people and reducing the poverty level in the country.

Contribution of the Economic Growth to Living Standards in Germany and Indonesia

Graph 5.0 Shows the Human Development Index (HDI) between Germany and Indonesia over the years.

The Human Development Index measures a composite index of people in a country on three dimensions which involves long and healthy life, education or knowledge and decent living standards of people. The HDI of Germany increased from 0.88 in 2004 to 0.93 in 2015 while that of Indonesia increased from 0.63 in 2004 to 0.69 in 2015. Germany is still ahead regarding Human Development Index and its economic growth, therefore, is by the living standards(Knoema, 2018).

The economic growth in both countries has affected the living standards of the people by a small margin. In Germany also the growth rate has not reached the poor people as there is 15.6 percent poverty rate in the country. The economic growth rate of Indonesia is not inclusive because there is still a large number of poor people as compared to the small percentage of wealthy people who control the economy. In Indonesia, unless the social security system is put into practice, the economic growth of the country will still divide the Indonesian society into first-world and third-world citizens. Economic growth of Germany has however led to high living standards of the people, and hence it has tried to achieve the high standards of living of its citizens.

Conclusions and Recommendations

Economic growth or GDP growth alone among countries may not be a good indicator of the standard of living between nations. Ther...