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 with the total population of that country.
- It shows the purchasing power of an individual and how much economic production is being 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 is the measure of market value of all the goods and service being produced in the country and is used as a primary tool to evaluate any economy, whereas it is obtained by dividing the GDP with the total population, so that it can show us the value of the country’s production in terms of every person.
- Mainly, economists use this metric to measure domestic productivity as compared to other competing nations, as this number can help them figure if GDP or population is impacting the economy.
Formula
The calculation is very simple and straight forward, there are two components – mainly GDP and the total population of the country. So, the formula for GDP Per CapitaFormula For GDP Per CapitaGDP per capita formula calculates the average of the nation's economic output when divided by the total population. In other words, it is the equal apportioning of the gross domestic product for each resident to represent the country's standard of living.read more is Total GDP / Total Population
- If we are looking at a particular point in one country, we can use Nominal GDPNominal GDPNominal GDP (Gross Domestic Product) is the calculation of annual economic production of the entire country's population at current market prices of goods and services generated by four main sources: land appreciation, labour wages, capital investment interest, and entrepreneur profits calculated only on finished goods and services.read more which means that the nominal GDP is measured in current $.
- Another option is, when we want to compare countries using this measure, we have to Purchasing Power ParityPurchasing Power ParityPurchasing power parity formula depicts the variation in the exchange rate between the currencies of two different nations. It is evaluated as the fraction of a particular goods' cost in one country to that in the second country.read more GDP as this measure the value of the same goods and services across the nations. This 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 is used to compare the standard of living between different nations.
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For eg:
Source: GDP Per Capita (wallstreetmojo.com)
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. 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.
Factors of GDP Per Capita
- It has many linkages to economic growth, mainly the government can use it to see how the economy is growing in terms of the population.
- It is very crucial to see each aspect as it helps to assess the domestic influence on the production at a national level.
- It can be also used to see if the economy is growing or shrinking, the GDP per capita indicates a lot to analyze for the analysts.
- For instance, if it is decreasing it means that either the population is growing faster than the GDP, or the production is not much enough for the population pulling the Per capita GDP downwards.
- On the contrary, if it is increasing it means that the economy is progressing with the same amount of population may be due to technological advancements or better employment opportunities in the country.
- If small nations with limited populations have high GDP per capita, it means that they have relatively small samples to serve with their abundance 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:
Source: http://statisticstimes.com/
- As we can see from the chart, Luxembourg is the richest amongst 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 to 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 $29840 between 1st and 2nd
- It is pure math, if the denominator (Population) is high is will give a small number (GDP Per Capita) as a result, lower the denominator the better. Or 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 that is published officially on the charts to measure the health of an economy.
- While, it is in a way GDP divided amongst the citizens of the country, which tells us that the overall production of the nation is for the country’s population and how much everyone is entitled to benefit from.
- GDP assists in measuring the health of the economy while they help to know the individual prosperity of its citizens.
Conclusion
All in all, GDP per capita plays a very crucial role in determining the country’s internal growth and prosperity. It also helps to analyze and compare one nation with others on a global scale, every nation allocates the resources for growth or to control the headcount according to this particular number.
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