Country Per Capita Income, Country GDP Per Capita

By: EconomyWatch   Date: 30 June 2010

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In common parlance, news reports and economic forecasts, country per capita income is considered as an indicator of a country’s economic well being. Gross domestic product or GDP is an approximate measure of the market value of all goods and services produced in a country during a specific period.

How to Calculate Country per Capita Income

When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. When the GDP is adjusted for inflation, it is called nominal GDP.

One method of calculation is to consider GDP at its purchasing power parity (PPP). The alternate method includes making inferences from nominal GDP figures.

Country per Capita Income as Economic Indicator

Country per capita is used to measure a country’s financial well being, particularly in comparison with other regions or nations. That is one reason why per capita income figures are expressed in terms of international currencies, such as US dollars. For a country, it goes beyond being a mathematical formula of economic growth as it also reveals the quality and standard of living of its people. For economists, however, an increase in country per capita income signifies national economic growth.

Economists and policy planners use country per capita income figures to:

  • estimate future trends of national economy.

  • use these figures to devise apt strategies to tackle potential fiscal threats to the economy.

  • use favorable figures to propel a country’s monetary activities.

  • strengthen a country’s economic climate.

  • devise structural adjustments to avert rising inflation in the wake of high purchasing power.

Drawbacks of Country per Capita Income

Just as a coin has two sides, the merits and drawbacks of country per capita income are highly debated.

Drawbacks include:

  • Gives no exact figure pertaining to domestic income levels.

  • Excludes the effects of economic differences existing in the society.

  • Prevailing economic differences threaten national stability even as it maintains high per capita income figures.
  • Excludes unregulated economic transactions such as black money and bartering.

  • Excludes production activity or reconstruction work due to natural disasters.

  • Tax evaders can easily hamper per capita income data.

Drawbacks are many but its benefits outweigh them, which is why it continues to be used by experts as a key economic indicator of a country’s economic progress.

 

 

 


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