Comparing GDP among countries

Postado 2023-04-04 20:28:05

16KB

Key Points

Since GDP is measured in a country’s currency, in order to compare different countries’ GDPs, we need to convert them to a common currency.
One way to compare different countries' GDPs is with an exchange rate, the price of one country’s currency in terms of another.
GDP per capita is GDP divided by population.

Introduction

It is common to use GDP as a measure of economic welfare or standard of living in a nation. When comparing the GDP of different nations for this purpose, two issues immediately arise.

First, the GDP of a country is measured in its own currency—the United States uses the US dollar; most countries of Western Europe use the euro; Japan uses the yen; and Mexico uses the peso. Because of this, comparing GDP between two countries requires converting to a common currency.

A second issue is that countries have very different numbers of people. For instance, the United States has a much larger economy than Mexico or Canada, but it also has roughly three times as many people as Mexico and nine times as many people as Canada. So, if we are trying to compare standards of living across countries, we need to divide GDP by population.

Converting currencies with exchange rates

To compare the GDP of countries with different currencies, it is necessary to convert to a common denominator using an exchange rate, which is the value of one currency in terms of another currency.

Exchange rates are expressed either as the units of country A’s currency that need to be traded for a single unit of country B’s currency—for example, Japanese yen per British pound—or as the inverse—British pounds per Japanese yen. Two types of exchange rates can be used to compare GDPs: market exchange rates and purchasing power parity, or PPP, equivalent exchange rates.

Market exchange rates vary on a day-to-day basis depending on supply and demand in foreign exchange markets. PPP-equivalent exchange rates provide a longer-run measure of the exchange rate. For this reason, PPP-equivalent exchange rates are typically used for cross-country comparisons of GDP.

GDP per capita

The US economy has the largest GDP in the world, by a considerable amount. The United States is also a populous country. In fact, it is the third largest country by population in the world—although it's well behind China and India. So is the US economy larger than other countries' economies just because the United States has more people or because the US economy is actually larger on a per-person basis? This question can be answered by calculating countries' GDP per capita—the GDP divided by the population.

To calculate GDP per capita, we start with the formula below.

start text, G, D, P, space, p, e, r, space, c, a, p, i, t, a, end text, equals, start text, G, D, P, end text, slash, start text, p, o, p, u, l, a, t, i, o, n, end text

We can use the table below to fill in the formula. The second column lists the GDP of various countries converted into US dollars. The third column gives the population for each country. The fourth column lists the GDP per capita—no cheating, don't look at this column yet!

GDP per capita is obtained in two steps:

Make sure your GDP and population numbers are in the same units. In our example, GDP is currently in billions, but population is in millions. We'll need to divide GDP by 1000 so it has the same units as population.
Divide GDP by population.

Once you've done the calculations for each of the countries yourself, you can check your work against the fourth column of the table.

GDP per capita, 2013
Country	GDP in billions of US dollars	Population in millions	Per capita GDP in US dollars
Brazil	2,246.00	199.20	11,172.50
Canada	1,826.80	35.10	52,037.10
China	9,469.10	1,360.80	6,958.70
Egypt	271.40	83.70	3,242.90
Germany	3,636.00	80.80	44,999.50
India	1,876.80	1,243.30	1,509.50
Japan	4,898.50	127.3	38,467.80
Mexico	1,260.90	118.40	10,649.90
South Korea	1,304.47	50.20	25,975.10
United Kingdom	2,523.20	64.10	39,371.70
United States	16,768.10	316.30	53,001.00

Notice that ranking by GDP is different from ranking by GDP per capita. For example, India has a somewhat larger GDP than South Korea, but on a per capita basis, South Korea has more than 10 times India’s standard of living.

[Is China going to surpass the United States in terms of standard of living?]

Summary

Since GDP is measured in a country’s currency, in order to compare different countries’ GDPs, we need to convert them to a common currency.
One way to compare different countries' GDPs is with an exchange rate, the price of one country’s currency in terms of another.
GDP per capita is GDP divided by population.

Faça o login para curtir, compartilhar e comentar!

Educação

Computer Education in the Modern World

In today’s digital age, education in computers has become essential for navigating the...

Por 2024-10-29 15:24:02 0 13KB

Stories

10 OF THE BLOODIEST WARS IN THE HISTORY OF MANKIND

The history of mankind is the history of wars. The Swiss Jean-Jacques Babel calculated that in...

Por 2022-10-24 10:46:26 0 36KB

Business

How Does Mentoring Differ from Coaching?

Mentoring and coaching are often used interchangeably, but they are fundamentally different in...

Por 2025-07-07 14:40:14 0 3KB

Subcultures

Exploring Society's Subcultures: Unveiling the Tapestry of Diversity

Society is a kaleidoscope of human experiences, where individuals come together, each bringing...

Por 2024-06-13 16:22:46 0 17KB

Knots

How to Learn to Tie Sea Knots

Sea knots for novice yachtsmen are one of the first sections of training in a sailing school....

Por 2022-11-03 17:19:21 0 24KB