GDP Per Capita

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GDP Per Capita Definition

GDP per capita is a parameter that breaks down the GDP of a country to measure the economic prosperity of the citizens by simply dividing the GDP by the total population of that country.

  • It shows the purchasing power and how much economic production is assigned to every citizen. The basis on which one can measure the national wealth of any economy since GDP per capita is used as a prosperity meter.
  • GDP measures the market value of all the goods and services being produced in the country and is used as a primary tool to evaluate any economy. In contrast, it is obtained by dividing the GDP by the total population to show us the value of the country's production in terms of every person.
  • Mainly, economists use this metric to measure domestic productivity compared to other competing nations, as this number can help them figure out if GDP or population is impacting the economy.
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Formula

The calculation is straightforward. There are two components – mainly GDP and the country's total population. So, the formula for GDP Per Capita is Total GDP / Total Population.

  • If we are looking at a particular point in one country, we can use Nominal GDP, which means the nominal GDP is measured in the current dollar.
  • Another option is, when we want to compare countries using this measure, we have to Purchasing Power Parity GDP as this measures the value of the same goods and services across the nations. It helps to bring equality and parity in the whole comparison process.
  • Lastly, we can also use Real GDP, where the economic outcome of the country is adjusted for inflation and used to compare the standard of living between different nations.
GDP Per Capita

GDP versus GNP Explained in Video

Example of GDP Per Capita

A country has a nominal GDP of $5 trillion and a population of around 300 million, as of December 2018. So let us try to calculate the GDP per capita using the nominal GDP formula.

Solution:

  • Nominal GDP: $5,000,000,000,000
  • Population: 300,000,000

The calculation of GDP per capita is shown below: -

calculation of GDP per capita

Factors of GDP Per Capita

  • It has many linkages to economic growth; mainly, the government can use it to see how it grows.
  • It is crucial to see each aspect as it helps assess the domestic influence on the production at a national level.
  • We can also use it to see if the economy grows or shrinks. The GDP per capita indicates a lot to analyze for the analysts.
  • For instance, if it decreases, the population grows faster than the GDP, or the production is not enough for the people to pull the per capita GDP downwards.
  • On the contrary, if increasing, the economy is progressing with the same population due to technological advancements or better employment opportunities in the country.
  • Suppose small nations with limited populations have high GDP per capita. In that case, it means that they have relatively small samples to serve with their abundance of production and that production is mainly because of the in-house special resources they have. e.g.: Dubai, Qatar, Luxembourg, etc.

Status of GDP Per Capita as of 2019

Below are the top 10 countries with the highest GDP per capita as of 2019:

Status of GDP Per Capita

Source: http://statisticstimes.com/.

  • As we can see from the chart, Luxembourg is the richest among all the countries since it has the highest GDP per capita of $113,196. Also, it has a comparatively low population which helps the nation stay at the top. As per the current data, it seems that it will maintain this position for next year, too, since there is a huge difference of $29,840 between 1st and 2nd.
  • It is pure math. If the denominator (population) is high, it will give a small number (GDP per capita); the lower the denominator, the better. Else, match the numerator (GDP) to make up for the high denominator.

Difference between GDP Per Capita and GDP

  • GDP is the total value of goods and services being produced in a country; it is a number published officially on the charts to measure the health of an economy.
  • While, it is GDP divided amongst the country's citizens, which tells us that the nation's overall production is for the country's population and how much everyone is entitled to benefit from.
  • GDP assists in measuring the economy's health while they help to know the individual prosperity of its citizens.

Conclusion

Overall, GDP per capita plays a crucial role in determining the country's internal growth and prosperity. It also helps to analyze and compare one nation with others globally. According to this particular number, every government allocates the resources for development or to control the headcount.