What is GDP Per Capita?
GDP per capita is a way to measure how prosperous a country in respect to each of its citizens. To understand what GDP per capita, it is first necessary to understand GDP, or Gross Domestic Product. Gross Domestic Product, or GDP, is the market value of all final services and goods that are produced within a country in a specific period. The GDP looks the market value to arrive at a value which is then used to examine the growth rate of the economy as well as the overall economic health of the country being looked at. As a measure of the economy, the GDP can be a very useful way to measure the economy.
While GDP is an aggregate figure that does not consider the varying sizes of countries, GDP per capita looks at the value resulting from dividing the total GDP by the country’s resident population on a given date. A helpful value can be obtained alternatively by GDP per citizen, where the total value of the GDP is divided by the amount of citizens that live in the country on a specific date. GDP per citizen in usually pretty similar to GDP per capita in many countries, but can vary largely in countries that high very high amounts of temporary foreign workers.
Although GDP per capita is not technically a measurement of the current standard of living in the economy, it is often used as an indicator of it. Similarly, while GDP per capita is not a country’s measure of personal income, it can be used to make observations about it. The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. GDP per capita is measured in that most countries frequently enough to provide data about the country’s GDP on a quarterly basis, which allows for trends to be observed quickly.
The major disadvantage of using GDP per capita is that the value is not a measure of the standard of living in the country. Rather, GDP is meant to be a measure of the nation’s total economic activity, which is an entirely different concept.
The rational for using GDP per capita as a proxy for standard-of-living is not that it acts as a good indicator of an absolute level of standard of living in the country, but rather that the living standards often move with the per-capita GDP, so that any changes in living standards are detected readily through changes in the GDP per capita.
Proponents of GDP per capita as a metric of social well-being often argue that the value is a neutral measure and displays what are able to do, rather than what we should do. This idea is compatible with the point that different individuals have different inclinations and different feelings on what well-being qualifies as.