There are many ways to measure different economies against one another, but comparing countries by GDP per capita remains one of the most tried-and-true methods.
GDP per capita attempts to level the playing field by dividing a country’s economic output by its population, effectively giving the average GDP per person. A higher per capita GDP generally corresponds to higher income, consumption levels, and standards of living.
The simplicity of this metric also makes it useful for economists and policymakers to communicate levels of economic well-being to the public.
There are many ways to measure different economies against one another, but comparing countries by GDP per capita remains one of the most tried-and-true methods.
GDP per capita attempts to level the playing field by dividing a country’s economic output by its population, effectively giving the average GDP per person. A higher per capita GDP generally corresponds to higher income, consumption levels, and standards of living.
The simplicity of this metric also makes it useful for economists and policymakers to communicate levels of economic well-being to the public.
The above graphic from theWORLDMAPS ranks the top 10 countries by per capita GDP in different regions, using data from the International Monetary Fund (IMF).
Luxembourg, Ireland, and Norway lead the ranking with more than $100,000 in GDP per capita. Luxembourg is a key financial services center in Europe, Ireland is the headquarters of many multinational corporations, and Norway is one of the largest energy exporters in the region, explaining their relative prosperity.
Wealthy countries with smaller populations tend to make up the world’s richest ranks. According to the IMF, Luxembourg only has slightly more than 600,000 people, which would be a small city in more populous countries. In fact, in the top 10, only the U.S. and Australia have a population of more than 10 million.
Introducing Purchasing Power Parity
One of the major drawbacks of using GDP per capita is that it doesn’t account for the strength of the local currency versus its exchange rate, the latter of which is heavily influenced by investment flows and demand for the national currency.
Non-tradable goods in a country (haircuts, local transport, schools, etc.) do not get valued when using an exchange-rate conversion. It also doesn’t account for the price differences between countries—for example, fresh vegetables in India are far cheaper than in Canada.
To solve this problem, economists utilize purchasing power parity (PPP) indexes. A key element of these indexes is that they remove these price differences and convert them into a common currency in order to show relative economic prosperity. Popular examples are The Economist’s Big Mac Index and the Wall Street Journal’s Latte Index.
Nominal vs. PPP-adjusted GDP Per Capita
In the case of GDP, PPP measurements use an “international dollar” which can buy the same amount of goods in any given country as a U.S. dollar could buy in America.
Immediately, there are a few noticeable differences in the top 10 countries by GDP per capita when adjusted for PPP. For one, most countries’ values have increased from their nominal value (except for the U.S. since it is the benchmark).
Some countries have switched ranks in the top 10, such as Ireland and Luxembourg. Others have been replaced altogether, with Iceland, Denmark, and Australia falling out of the top 10, replaced by Macao, the UAE, and San Marino.
We can also see how the different calculations of GDP per capita affect the rankings in other regions:
The Americas and Europe
The U.S. leads the Americas in both nominal and PPP-adjusted per capita GDP. However, Canada drops to 3rd place under the new metric, overtaken by Guyana.
In Europe, the usual suspects in the world’s top 10 populate most of the region’s ranks. However, Andorra slides in at 10th in Europe’s richest countries by GDP per capita (PPP). Andorra in particular benefits from its status as a free economic zone—very low or no taxes—and being a tourism hotspot with the sector contributing 80% to its economy.
Asia
Singapore, Qatar, Macao, the UAE, and Hong Kong claim top spots as Asia’s richest countries on both lists. Qatar and the UAE benefit from oil being a key export of the region, while Singapore and are top financial centers of Asia. Macao—where gambling is legal—is a massive tourism draw.
On the other hand, Israel and Japan drop out of the richest countries in Asia when using PPP calculations, with countries like Saudi Arabia and Bahrain edging them out.
Africa and Oceania
The island nations of Seychelles and Mauritius lead the ranks of countries by GDP per capita in both nominal and PPP categories on the African continent, also thanks to their booming tourism industries.
Traditional African economic heavyweight South Africa also features in this list of Africa’s richest. But Egypt, the region’s third-largest economy, only makes the top 10 countries by GDP when adjusted for PPP, otherwise weighed down by its large population.
And in Oceania, adjusting GDP for purchasing power doesn’t have much effect on the sizable gap between Australia and New Zealand and their smaller island neighbors. But some local economies are noticeably stronger when adjusting for PPP, especially Fiji‘s, which has a GDP per capita (PPP) three times bigger than its nominal value.
The Drawbacks of GDP Per Capita
GDP per capita is a useful measure, but it also comes with its own set of caveats.
For one, it is a measurement of economic output per person, not individual income or household savings. That gives it clear limitations in certain cases, such as in Ireland, where the presence of multinational corporations obfuscates the general output per person.
Secondly, countries with smaller populations do better in the rankings. Most of the world’s biggest economies (China, India, UK, France) do not find themselves in the top 10 ranks.
Finally, other metrics for a good standard of living, some of them intangible in economic terms—human rights and freedom of expression—are not accounted for at all.
This was originally published by the WORLDMAPS on visualcapitalist.com as a part of Visual Capitalist’s Creator Program, which features data-driven visuals from some of their favorite Creators around the world.
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