The GDP growth can be because of many things. Things that are useless actually. Imagine a country where people consume a lot of junk food; cold drinks and burgers. And the GDP of the country increases because of these. And after a person consumes so much junk food and becomes unhealthy, he may need to go to the hospital. He’ll get a taxi to go to the hospital. He’ll get treatment in the hospital and after his treatment, he’ll get another taxi to get home.
In the entire scenario, at every point, the GDP of the country increases. Eating junk food increases the GDP of the country. Riding in the taxi is increasing the GDP of the country. Even the hospital treatment is increasing the GDP of the country. Because money is exchanged at every point. Money is being transferred.
But in this scenario, is there any overall increase in the wealth of the person? No. There will be no overall benefit. Junk food is consumed. The taxi ride is over. And after the treatment, there’s no more value. Now compare this to a country where the GDP is increasing mostly because of constructing new buildings, building new highways, because of new construction, new factories being set up.
In the second country, the wealth would also increase because all of these is increasing the wealth. And broadly speaking, this is the difference between the USA and China. If I have to base this on data and statistics, then look at the comparison between the USA and China. The contribution of the service sector and industries of both countries to its GDP.
The service sector in China is at 54.5% and the contribution of the industries is at 37.8%. On the other hand, the service sector of the USA contributes 77.3%. And only 18.2% of the contribution is from the industries. I explained this same difference with the example. Eating junk food, using taxi services, healthcare services, are all services. They come under the service sector. And new construction comes under industries.
