The GDP per capita is a fair measure of a country’s standard of living since it divides a country’s economic output by its total population. It also tells you how affluent a country feels to each of its residents.
What makes real GDP per capita such a useful metric?
Gross Domestic Product (GDP) per capita is the abbreviation for Gross Domestic Product (GDP) per capita (per person). It is calculated by simply dividing total GDP (see definition of GDP) by the population. In international markets, per capita GDP is usually stated in local current currency, local constant currency, or a standard unit of currency, such as the US dollar (USD).
GDP per capita is a key metric of economic success and a helpful unit for comparing average living standards and economic well-being across countries. However, GDP per capita is not a measure of personal income, and it has certain well-known flaws when used for cross-country comparisons. GDP per capita, in particular, does not account for a country’s income distribution. Furthermore, cross-country comparisons based on the US dollar might be skewed by exchange rate movements and don’t always reflect the purchasing power of the countries under consideration.
For the last five years, the table below illustrates GDP per capita in current US dollars (USD) by country.
Are you looking for a forecast? The FocusEconomics Consensus Forecasts for each country cover over 30 macroeconomic indicators over a 5-year projection period, as well as quarterly forecasts for the most important economic variables. Find out more.
Is GDP per capita a reliable indicator of economic progress?
GDP is a good indicator of an economy’s size, and the GDP growth rate is perhaps the best indicator of economic growth, while GDP per capita has a strong link to the trend in living standards over time.
Is per capita real GDP a good indicator of living standards?
The GDP is the total production of goods and services produced within a country’s borders in a given year. Inflation and price rises are removed from real GDP per capita. Real GDP is a stronger indicator of living standards than nominal GDP.
What is the definition of real GDP?
The real GDP of a country is a measure of its gross domestic product adjusted for inflation. In comparison, nominal GDP is calculated using current prices and is not adjusted for inflation.
Is GDP a reliable indicator of economic well-being?
GDP has always been an indicator of output rather than welfare. It calculates the worth of goods and services generated for final consumption, both private and public, in the present and future, using current prices. (Future consumption is taken into account because GDP includes investment goods output.) It is feasible to calculate the increase of GDP over time or the disparities between countries across distance by converting to constant pricing.
Despite the fact that GDP is not a measure of human welfare, it can be viewed as a component of it. The quantity of products and services available to the typical person obviously adds to overall welfare, while it is by no means the only factor. So, among health, equality, and human rights, a social welfare function might include GDP as one of its components.
GDP is also a measure of human well-being. GDP per capita is highly associated with other characteristics that are crucial for welfare in cross-country statistics. It has a positive relationship with life expectancy and a negative relationship with infant mortality and inequality. Because parents are naturally saddened by the loss of their children, infant mortality could be viewed as a measure of happiness.
Figures 1-3 exhibit household consumption per capita (which closely tracks GDP per capita) against three indices of human welfare for large sampling of nations. They show that countries with higher incomes had longer life expectancies, reduced infant mortality, and lesser inequality. Of course, correlation does not imply causation, however there is compelling evidence that more GDP per capita leads to better health (Fogel 2004).
Figure 1: The link between a country’s per capita household consumption and its infant mortality rate.
What is GDP such a poor indicator of economic growth?
GDP is a rough indicator of a society’s standard of living because it does not account for leisure, environmental quality, levels of health and education, activities undertaken outside the market, changes in income disparity, improvements in diversity, increases in technology, or the cost of living.
Why do most economists consider real GDP to be a more accurate measure of output?
- Real GDP (gross domestic product) is a monetary measure of all goods and services generated in a country, adjusted for inflation or deflation.
- Real GDP is preferred by economists over other measures because it accounts for price fluctuations and provides a more accurate picture of production growth.
- Individuals and their investment decisions can be influenced by market and government reactions to real GDP statistics, such as increasing interest rates or taxes.
Is real GDP a better indicator of economic health than nominal GDP?
As a result, whereas real GDP is a stronger indication of consumer spending power, nominal GDP is a better gauge of change in output levels over time.