How Is GDP Per Capita Calculated? Every year, the World Bank releases its report on the countries and states around the world with the highest GDP per capita . But what does that mean, exactly? How do you calculate GDP per capita? And why are some countries so much richer than others? This economist explains how to calculate your country’s GDP per capita in three easy steps.
What Is Per Capita GDP?
Gross domestic product (GDP) per capita is a measure of the productivity and wealth of a country. This measure looks at the total production within a country over a certain time period, then divides it by the population to find out how much each person produces in terms of goods and services. This number gives an idea of how wealthy each citizen is on average, or what they can consume. What Is Per Capita GDP? Here are some interesting points:
– It tells us that just like there is more than one type of unemployment rate, there are many different types of Gross Domestic Product rates: personal income per capita, household net worth per capita, household income per capita. – What Is Per Capita GDP?: The Gini coefficient is a standard way to compare inequality between countries or regions. A Gini coefficient close to zero indicates perfect equality, while a Gini coefficient close to one means maximal inequality. The United States’ national Gini coefficient was .41 in 2013.
Understanding Per Capita GDP
In order to understand per capita GDP it is important to start with the basics of what economic growth means. To measure economic growth, economists generally turn to a nation’s gross domestic product (GDP), which is the value of all final goods and services produced by labor and property within its borders in one year. One of the most common measures of economic well-being, GDP takes into account income or consumption as a measure of wellbeing in addition to growth. For example, if a nation has very high levels of consumption but its population does not have any formal education, their per capita incomes may be relatively low. In these instances measuring happiness from an individual basis might be more useful than looking at overall outcomes for society.
Applications of Per Capita GDP
Per capita measures the average wealth of a nation’s citizens. It is calculated by dividing the country’s total GDP by its total population. There are various applications of per capita GDP to better understand how wealth is distributed among individuals in the country. This can help us understand if there is extreme inequality, where one group of citizens has an enormous share of the nation’s wealth and another group might have none, or poverty, where a small percentage does not have sufficient resources for a decent standard of living. Income inequality refers to how economic growth is unequally distributed among income groups, whereas consumption inequality refers to how unevenly wealth is distributed across people from various levels in society who consume different amounts.
Negative Per Capita GDP
GDP per capita is calculated by dividing the total value of goods and services produced in a country by the total population of that country. The result is an approximate measure of how much each person in the country would earn if all income was redistributed evenly. Negative per capita GDP can happen when a country has an oversupply of natural resources, which causes their manufacturing sector to shrink and leads to an overall decrease in productivity. You can see this effect in countries like Venezuela or Nigeria, where the oil industry drives most of the economy and creates huge wealth gaps between rich people who work with oil and poor people who don’t work with oil. That gap shows up as negative per capita GDP because while some people are very wealthy and produce a lot of goods and services, other people are very poor and produce few or no goods or services.
Nations With the Highest Per Capita GDP
The GDI represents the Gross Domestic Product of each nation, or the monetary value of all goods and services produced in that country, for a given time. It is calculated by adding up total GDP and subtracting the depreciation costs of capital. Countries with higher per capita GDI usually have high-tech industries and more stable governments. Nations With the Highest Per Capita GDP include Luxembourg, Qatar, Norway, Singapore and Switzerland.
In general, citizens from countries with a high GDP per capita tend to be happier. However, having to shoulder much of your nation’s wealth might not always be as desirable as it seems; residents living in countries with similar socio-economic status who earn less than their wealthier counterparts are actually happier on average than those who make much more. Nations With the Highest Per Capita GDP are far better off economically than most others around them but even they have glaring socio-economic issues such as pollution and an increasingly aging population that must still be addressed despite their vast economic growth over time.
Nations With the Lowest Per Capita GDP
The nations with the lowest per capita GDP, according to the CIA World Factbook, are: Congo, Central African Republic, Chad, Comoros Islands, Guinea-Bissau, Mozambique and Madagascar. The country with the lowest per capita income is Congo.
In contrast to these countries where the citizens have very little in terms of material wealth and resources such as food or clean drinking water, there are nations that have a high per capita GPD.
The nations with the highest per capita GPD are Luxembourg (124229), Norway (111402), Kuwait (103892) and Qatar (102026).
Even though both of these countries have a low level of poverty, they still do not compare to a place like Liechtenstein.
The nations with lowest per-capita incomes tend to be small island nations and those in Central Africa where subsistence agriculture is often practiced by many locals.
Per Capita GDP Forecasts
Per capita GDP can be calculated by dividing the country’s gross domestic product by its population size. There are some limitations to this method, however, as it doesn’t take into account immigration or emigration rates and will only give a reading for one year rather than over a period of time. To adjust for these factors and get a more accurate forecast, economists often use another metric called purchasing power parity.
To calculate Purchasing Power Parity per person: Divide each country’s GDP by the U.S.’s GDP and then divide that number again by each individual country’s population size.
As an example, if we were comparing Canada to India:
Canada has a Per Capita GDP Forecast of US$59K while India is forecasted at US$6K; multiplying both values by 100 gives us $1490 vs $160 respectively. That would mean Canada has almost 18 times more purchasing power per person than India on average!
Conclusion
The conclusion of the paper suggests that the correlation between high GPD per capita and higher happiness is not as strong as one might expect. This can be seen in the scatterplot showing that although there is a positive correlation, it does not predict perfectly whether countries will rank high or low on happiness. The paper also notes that other variables such as culture, climate, and education level may play a role in creating a happy society. Ultimately, this conclusion seems to suggest that more research needs to be done on what exactly creates content societies before drawing conclusions about GPD per capita as a leading indicator of happiness. A good example of this kind of analysis is found in The Economics Of Happiness by Bruno Frey and Alois Stutzer. The conclusion drawn by Frey and Stutzer was that despite the correlation being strong at first sight, there are many confounding factors which change the conclusion significantly. For example, they show that when an individual makes a major purchase (such as buying their first home), their happiness decreases shortly after because they become less satisfied with life generally. They argue for many more years of data collection before making any conclusions about how GPD affects society at large.