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Limitations of the National Income Estimates

The national income estimates, though very useful, have some limitations when applied in the areas of usefulness stated in Uses of national income estimates.

(i) Income Distribution not shown:

The estimates do not reveal how the income is distributed among the people of the country. It fails to show whether it is widely distributed or just concentrated in the hands of some few rich persons.

(ii) Difference in compiling the Estimates:

Difference in compiling the national income estimates makes it a fairly unreliable data in the computation of the per capita income. In the calculation of the income estimates in the developed nations, all relevant income product or expenditure data are well kept both in the urban and rural areas, unlike what is found in the less developed countries, West Africa inclusive. Good records are found mostly in the towns while such records, especially among the rural farmers and the self-employed, are almost non-existent. This shows that estimates from the developed countries will be higher than those from the less developed ones, thus making the comparison of their per capita income inaccurate.

(iii) Inflation:

When inflation occurs, the prices of goods and services go up and the resultant effect is that a particular amount of money now buys fewer goods than it did before the inflation. The effect of this is to increase the national income estimates. This will tend to suggest that the standard of living has increased while it has actually decreased.

(iv) The People’s hardship not revealed:

The estimates do not reveal the sufferings endured by the citizens in order to get it increased, and the estimates do not expose the work conditions of the citizens even when it is possible that the increase in national income was achieved through economic hardships in term of poor living conditions, urban congestion, environmental hazards, pollution and working long hours with little pay.

(v) Unreliable for the Measure of Standard of living:

As a measure of the standard of living, it is not reliable due to the inaccurate records of data collected both during the computation of the national income estimates, and the population figures. When two inaccurate estimates are used for the calculation of the per capita income, the result is bound to be faulty and fairly unreliable in the comparison of the standard of living of one country with another.