What is the difference between real GDP and real GDP per capita?
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GDP per capita and GDP per capita annual growth rate are widely used by economists to gauge the health of an economy. The annual growth rate of real GDP per capita is included as an indicator for SDG 8: "Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all". Show
How are they defined? GDP per capita, purchasing power parity (PPP) (current international $) - This is the GDP divided by the midyear population, where GDP is the total value of goods and services for final use produced by resident producers in an economy, regardless of the allocation to domestic and foreign claims. It does not include deductions for the depreciation of physical capital, or the depletion and degradation of natural resources. PPP indicates the rate of exchange that accounts for price differences across countries, allowing for international comparisons of real output and incomes. An international dollar has the same purchasing power in the domestic economy as the US dollar has in the United States. PPP rates allow for standard comparisons of real prices among countries, just as conventional price indexes allow for comparisons of real values over time. The use of normal exchange rates could result in overvaluation or undervaluation of purchasing power. GDP per capita annual growth rate - This is defined as the least-squares annual growth rate, calculated from the constant price GDP per capita in local currency units. What are the consequences and implications? Higher income is usually associated with lower rates of malnutrition. Improving income, however, reduces malnutrition to only a small degree (World Bank, 2006). For example, when the gross national product (GDP plus the net factor income residents receive from abroad for factor services [labour and capital], minus the income earned by foreign residents contributing to the domestic economy) per capita in developing countries doubled, the nutrition situation did improve, but reductions in underweight rates were only modest. On the basis of the correlation between growth and nutrition, it is estimated that sustained per capita economic growth would indeed reduce malnutrition, but not by a drastic amount. These estimates suggest that countries cannot depend on economic growth alone to reduce malnutrition within an acceptable time. Source of data World Bank. DataBank: World development indicators (http://databank.worldbank.org/data/home.aspx). Further reading Repositioning nutrition as central to development: a strategy for large-scale action. Washington (DC): World Bank; 2006 (http://documents.worldbank.org/curated/en/185651468175733998/Repositioning-nutrition-as-central-to-development-a-strategy-for-large-scale-action-overview). Internet resources United Nations. Global Sustainable Development Goals indicators database (https://unstats.un.org/sdgs/indicators/database/). When economists talk about the standard of living, they are referring to the average quantity (and quality) of goods and services that people in a country can afford to consume. Since real GDP measures the quantity of goods and services produced, it is common to use GDP per capita, that is real GDP divided by population, as a measure of economic welfare or standard of living in a nation. GDP Per CapitaThe U.S. economy has the largest GDP in the world, by a considerable amount. The United States is also a populous country; in fact, it is the third largest country by population in the world, although well behind China and India. So is the U.S. economy larger than other countries just because the United States has more people than most other countries, or because the U.S. economy is actually larger on a per-person basis? This question can be answered by calculating a country’s GDP per capita; that is, the GDP divided by the population. [latex]\displaystyle\text{GDP per capita}=\frac{\text{GDP}}{\text{population}}[/latex] The second column of Table 1 lists the GDP of several countries, showing their GDP as converted into U.S. dollars. The third column gives the population for each country. The fourth column lists the GDP per capita. GDP per capita is obtained in two steps: first, by dividing column two (GDP, in billions of dollars) by 1000 so it has the same units as column three (Population, in millions), then dividing column two (GDP) by column three (population). Table 1. GDP Per Capita, 2013(Source: http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx)CountryGDP (in billions of U.S. dollars)Population (in millions)Per Capita GDP (in U.S. dollars)Brazil2,246.00199.2011,172.50Canada1,826.8035.1052,037.10China9,469.101,360.806,958.48Egypt271.4083.703,242.90Germany3,636.0080.8044,999.50India1,876.801,243.301,509.50Japan4,898.50127.338,467.80Mexico1,260.90118.4010,649.90South Korea1,304.4750.2025,975.10United Kingdom2,523.2064.1039,371.70United States16,768.10316.3053,013.28Notice that the ranking by GDP is different from the ranking by GDP per capita. China has a somewhat larger GDP than Germany, but on a per capita basis, Germany has more than 6 times China’s standard of living. Will China soon have a better standard of living than the U.S.? Read the following Clear It Up feature to find out. IS CHINA GOING TO SURPASS THE UNITED STATES IN TERMS OF STANDARD OF LIVING?As shown in Table 1, China has the second largest GDP of the countries: $9.5 trillion ($9,469.10 billion) compared to the United States’ $16.8 trillion ($16,768.10 billion). Perhaps it will surpass the United States, but probably not any time soon. China has a much larger population so that in per capita terms, its GDP is less than one fifth that of the United States ($6,958.48 compared to $53,013.28). The Chinese people are still quite poor relative to the United States and other developed countries. One caveat: For reasons to be discussed shortly, GDP per capita can give us only a rough idea of the differences in living standards across countries. The high-income nations of the world—including the United States, Canada, the Western European countries, and Japan—typically have GDP per capita in the range of $20,000 to $50,000. Middle-income countries, which include much of Latin America, Eastern Europe, and some countries in East Asia, have GDP per capita in the range of $6,000 to $12,000. The low-income countries in the world, many of them located in Africa and Asia, often have GDP per capita of less than $2,000 per year. Try ItLimitations of GDP as a Measure of the Standard of LivingThe level of GDP per capita clearly captures some of what we mean by the phrase “standard of living.” Most of the migration in the world, for example, involves people who are moving from countries with relatively low GDP per capita to countries with relatively high GDP per capita. “Standard of living,” though, is a broader term than GDP per capita. While GDP focuses on production that is bought and sold in markets, standard of living includes all elements that affect people’s well-being, whether they are market transactions or not. To illuminate the gap between GDP and standard of living, it is useful to spell out some things that GDP does not cover that are clearly relevant to standard of living. While GDP includes spending on recreation and travel, it does not cover leisure time. Clearly, however, there is a substantial difference between an economy that is large because people work long hours, and an economy that is just as large because people are more productive with their time so they do not have to work as many hours. The GDP per capita of the U.S. economy is larger than the GDP per capita of Germany, as was shown in Table 1, but does that prove that the standard of living in the United States is higher? Not necessarily, since it is also true that the average U.S. worker works several hundred hours more per year more than the average German worker. The calculation of GDP does not take the German worker’s extra weeks of vacation into account. While GDP includes what is spent on environmental protection, healthcare, and education, it does not include actual levels of environmental cleanliness, health, and learning. GDP includes the cost of buying pollution-control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but does not address whether life expectancy or infant mortality have risen or fallen. Similarly, it counts spending on education, but does not address directly how much of the population can read, write, or do basic mathematics. GDP includes production that is exchanged in the market, but it does not cover production that is not exchanged in the market. For example, hiring someone to mow your lawn or clean your house is part of GDP, but doing these tasks yourself is not part of GDP. One remarkable change in the U.S. economy in recent decades is that, as of 1970, only about 42% of women participated in the paid labor force. By the second decade of the 2000s, nearly 60% of women participated in the paid labor force according to the Bureau of Labor Statistics. As women are now in the labor force, many of the services they used to produce in the non-market economy like food preparation and child care have shifted to some extent into the market economy, which makes the GDP appear larger even if more services are not actually being consumed. GDP has nothing to say about the level of inequality in society. GDP per capita is only an average. When GDP per capita rises by 5%, it could mean that GDP for everyone in the society has risen by 5%, or that of some groups has risen by more while that of others has risen by less—or even declined. GDP also has nothing in particular to say about the amount of variety available. If a family buys 100 loaves of bread in a year, GDP does not care whether they are all white bread, or whether the family can choose from wheat, rye, pumpernickel, and many others—it just looks at whether the total amount spent on bread is the same. Likewise, GDP has nothing much to say about what technology and products are available. The standard of living in, for example, 1950 or 1900 was not affected only by how much money people had—it was also affected by what they could buy. No matter how much money you had in 1950, you could not buy an iPhone or a personal computer. In certain cases, it is not clear that a rise in GDP is even a good thing. If a city is wrecked by a hurricane, and then experiences a surge of rebuilding construction activity, it would be peculiar to claim that the hurricane was therefore economically beneficial. If people are led by a rising fear of crime, to pay for installation of bars and burglar alarms on all their windows, it is hard to believe that this increase in GDP has made them better off. In that same vein, some people would argue that sales of certain goods, like pornography or extremely violent movies, do not represent a gain to society’s standard of living. Try ItWatch It!Watch this video to learn more about how GDP is used to gauge economic productivity and what other measures are useful in examining a nation’s economic growth. You can view the transcript for “Productivity and Growth: Crash Course Economics #6” here (opens in new window). GlossaryGDP per capita:GDP divided by the population; often used as a measure of standard of livingstandard of living:all elements that affect people’s happiness, whether these elements are obtained through market transactions or not What is difference between GDP and GDP per capita?GDP per capita, purchasing power parity (PPP) (current international $) - This is the GDP divided by the midyear population, where GDP is the total value of goods and services for final use produced by resident producers in an economy, regardless of the allocation to domestic and foreign claims.
Is real GDP per capita the same as real GDP per person?The main difference between GDP and GDP per capita is that GDP is the total value of goods and services a country produces annually whereas GDP per capita is a measure of the country's economic output per person.
What does real GDP per capita mean?Short definition. GDP per capita is the sum of gross value added by all resident producers in the economy plus any product taxes (less subsidies) not included in the valuation of output, divided by mid-year population.
What is the difference between real GDP and?Key Takeaways. Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually. Real GDP is nominal GDP adjusted for inflation. Real GDP is used to measure the actual growth of production without any distorting effects from inflation.
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