Per Capita GDP – Definition

Cite this article as:"Per Capita GDP – Definition," in The Business Professor, updated September 14, 2019, last accessed August 14, 2020, https://thebusinessprofessor.com/lesson/per-capita-gdp-definition/.

Back to: ECONOMICS, FINANCE, & ACCOUNTING

Per Capita GDP Definition

The per capita Gross Domestic Product is ascertained by dividing the gross domestic product of a nation for an accounting year by its average population.

GDP is the combined value of final goods and services that are manufactured in a country’s boundaries in a specific year. GDP helps in ascertaining the economic condition of a country, whereas the per capita GDP signifies how living conditions prevail owing to the change in population in a particular year.

Key points:

  • Per capita GDP refers to making adjustments in the GDP as per the size of the population of a nation. It offers a sound measure of the country’s living standards.
  • Countries that are small in size, wealthy, and having a huge industrial base are considered to have the biggest amounts of per capita GDP.
  • If the population of a nation keeps increasing, and the GDP doesn’t match up with the population growth, it will lead to lesser per capita GDP.
  • The per capita GDP of developing countries usually matches to that of developed countries once they start growing in an economic manner.

A Little More on What is Per Capita GDP

Per Capita GDP informally determines how well the country is developing. The wealthiest nations with a relatively small population size and bigger economies tend to have more per capita GDP. ‘Per capita GDP’ and ‘GDP per capita’ are interchangeable in the real world.

Except the U.S. and Germany, the majority of the countries mentioned in the list don’t have a big size of the population. Being the greatest economic power and having the third-highest population size, the U.S. tends to be a powerful nation among others.

Growth and per capita GDP

Irrespective of having a constant economic growth, a nation can experience a fall in its per capita GDP if its population size grows dramatically. However, developed nations don’t face this issue much because their slow economic growth will still manage to surpass their low rates of population growth. However, it can be a big problem for nations, say in Africa, that have less per capita GDP in the initial stage. There, the rise in population has led to inferior living standards for people.

As per the World Bank stats, there has been an average increase in the international per capita GDP by 1.88% on an annual basis from the year 1961 to 2017. Also, the world economy rose at 3.52% on an average on a yearly basis, while the global population rose annually at 1.61% on an average.

With the introduction of financial regulations in the 1970s by China, and in the mid-1990s by India, the per capita GDP growth rates were beyond the average levels even if the population was increasing at a very rapid pace.

The economy of China experienced an annual growth of 5% from 1961 to 1977, with a further increase of 9.6% from 1978 to 2017 which was twice the previous growth rate. In around 60 years, the per capita GDP of China increase to three times from 2.8% per annum from 1961-1977 to more than 8.5% per annum in 1978-2017.

Similarly, with the major effect of financial forms and deregulation, the economic growth of India rose annually from 4.25% in 1961-1993 to 7% per annum from 1994 to 2017. Also, per capita GDP rose from 1.93% per annum in 1961-1993 to 5.35% that was almost three times in 1994-2017.

Future Prospects

The Organization for Economic Cooperation and Development (OECD) presented estimates for gross domestic product and per capita GDP in a report named ‘Looking to 2060: Long-term global growth prospects’. As per the report, if the GDP of both India and China are combined, it would be more than the total GDP of the G7 countries in the coming years, and that of OECD countries by the year 2060. The major factor influencing the economic growth of already developed and developing countries will be productivity gains. The report stated that developing countries experiencing a lower productivity would higher  productivity growth rates as compared to developed countries because of technology advancements, and more effective government policies.

The report also predicted that there will be a correlation between the productivity levels and GDP per capita of developing and emerging nations. It further estimated that the per capita GDP would increase two folds in the most affluent economies from 2011 to 2060. However, it will be four times in case of the weakest or financially poor nations. By 2060, China and India would experience an increase in per capita income to 7 times. The report further mentioned that the ranks secured by nations for per capita GDP in 2011 would coincide with those of in the year 2060 too.

References for “Per Capita GDP

https://www.investopedia.com › Insights › Markets & Economy

https://www.thebalance.com/gdp-per-capita-formula-u-s-compared-to-highest-and-lo…

https://www.focus-economics.com/economic-indicator/gdp-per-capita

https://dictionary.cambridge.org/dictionary/english/gdp-per-capita

https://marketbusinessnews.com/financial-glossary/gdp-per-capita/

Was this article helpful?