Handout: GDP or GDP per Capita?

This week’s Economist has, in its “Economics Focus” column, an interesting article about whether we should look at GDP or GDP per capita. Some statements turn out to be fallacious when you substitute one for the other:

WHICH economy has enjoyed the best economic performance over the past five years: America’s or Japan’s? Most people will pick America. The popular perception is that America’s vibrant economy was sprinting ahead (albeit fuelled by credit and housing bubbles that have now painfully burst), whereas Japan crawled along at a snail’s pace. And it is true that America’s average annual real GDP growth of 2.9% was much faster than Japan’s 2.1%. However, the single best gauge of economic performance is not growth in GDP, but GDP per person, which is a rough guide to average living standards. It tells a completely different story. [link]

A decreasing birth rate, an increasing GDP per capita – it should all sound familiar to us. Assignment #5 had a problem about decreasing birth rates and the demographic transition.

Turns out that India’s growth is not that great when you look at it from a GDP per capita perspective:

Indians love to boast that their economy’s growth rate has almost caught up with China’s, but its population is also expanding much faster. Over the past five years, the 10.2% average increase in China’s income per head dwarfed India’s 6.8% gain.

GDP per capita is, I think, the more important measure. Average income provides us with more insight than total income, especially in places where there are vast disparities in income. Can you think of another, more accurate measure of wealth? Something other than the average?

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