NCPA - National Center for Policy Analysis


March 19, 2008

The single best gauge of economic performance is not growth in gross domestic product, but GDP per person, which is a rough guide to average living standards.  It tells a completely different story, says the Economist.

Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries' economic health.  For example:

  • Australian politicians often boast that their economy has had one of the fastest growth rates among the major developed nations -- an average of 3.3 percent over the past five years.
  • But Australia has also had one of the biggest increases in population; its GDP per head has grown no faster than Japan's over this period.
  • Likewise, Spain has been one of the euro area's star performers in terms of GDP growth, but over the past three years output per person has grown more slowly than in Germany, which like Japan, has a shrinking population.

Some emerging economies also look less impressive when growth is compared on a per-person basis:

  • One of the supposedly booming BRIC countries, Brazil, has seen its GDP per head increase by only 2.3 percent per year since 2003, barely any faster than Japan's.
  • Russia, by contrast, enjoyed annual average growth in GDP per head of 7.4 percent because the population is falling faster than in any other large country (by 0.5 percent a year).
  • 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 percent average increase in China's income per head dwarfed India's 6.8 percent gain.

Source: "Grossly Distorted Picture," The Economist, March 13, 2008.

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