Friday, August 15, 2008

GDP per capita

Gross domestic product (GDP) per capita (also called per capita GDP) is a country's GDP divided by its population. It provides an estimate of the average annual income of a person living in that country. If one is interested in estimating a nation's standard-of-living, GDP per capita is generally preferable to GDP.

Gross domestic product measures the total output produced in a country. It does not consider the country’s population, however. China has the second largest national GDP (behind the United States). Because China’s population is so large, however, the GDP data do not accurately represent the average value of the goods and services available to each person. Most economists suggest a better measurement of standard-of-living is per capita GDP.

Per capita GDP measures the nominal value of a country’s output per person. It is calculated by dividing nominal GDP by the country’s population. It is a measure of the income of an average person in the country.
U.S. GDP in 2003 was $11.003 trillion. The U.S. Census Bureau’s estimate of the U.S. population on July 1, 2003 is 290,809,777. Thus, an estimate of per capita GDP in the United States in 2003 is $37,836.

per capita GDP = nominal GDP / population
= $11.003 trillion /290,809,777 = $37,836 per person

Test your understanding of the difference between GDP and per capita GDP

Per capita GDP is more useful than GDP when comparing the standard of living in various countries. To illustrate this, consider two economies. Country A has a nominal GDP of $1 billion. Country B has a nominal GDP of $100 million. Which country has the higher standard of living?

The answer depends on each country’s population:

If country A has a population of 1 billion people, then its per capital GDP is $1 per person.

per capita GDP = nominal GDP / population
= $1 billion / 1 billion people = $1 per person

If country B has a population of 1,000 people, then its per capita GDP is $100,000 per person.

per capita GDP = nominal GDP / population
= $100 million / 1,000 people = $100,000 per person

GDP per capita

The following table ranks the countries of the world by per capita GDP using the data available from the U.S. Central Intelligence Agency (CIA) in May 2009. Notice that China’s ranking by per capita GDP (133rd) is significantly lower than its ranking by GDP (2nd).

Economic Growth - Topics

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