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What is GDP per capita?

GDP per capita refers to the measurement of a country’s economic growth in relation to the country’s population. GDP stands for gross domestic product that means all that the country produces per year.

To compute for GDP per capita, one must compute for the GDP and divide it to the population of the country. GDP per capita, also simply put is the output of one nation per citizen.

Why the richest countries do not have the highest GDP per capita

GDP per capita is used to determine as well as compare how rich a country is given its population. And as such, a country may have a very high GDP but may not necessarily have the highest GDP per capita.

For example, the United States recorded an economic growth of $16.72 trillion for the year 2013, but the country only ranked 13th in terms of GDP per capita. This is because the US has a big population; in fact, the third in the world only next to China and India.

The US has to divide its GDP among its population of about 319 million Americans and so its GDP per capita for 2013 is only $52,800. If US had a smaller population, and then the country would have a higher GDP per capita.

How to measure GDP per capita

In order to measure GDP per capita, one must take into consideration the country’s purchasing power parity or the equality within the nation.

The concept of purchasing power parity is complicated since it requires making a comparison of the basket of same good and the country’s currency. The purchasing power parity must take into consideration what one can buy in a certain country given its exchange rate. A country may have a low cost of living which also results in higher purchasing power parity.

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Posted by on Oct 21st, 2014 and filed under Business, Economics. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.