GDP Per Capita with its Formula and Country Comparisons
Why the World's Largest Economies Aren't the Richest
GDP per capita is a measure of a country's economic output that accounts for its number of people. It divides the country's gross domestic product by its total population. That makes it the best measurement of a country's standard of living. It tells you how prosperous a country feels to each of its citizens.
GDP per Capita Formula
If you want to compare GDP per capita between countries, you must use the purchasing power parity GDP. That creates parity, or equality, between countries by comparing a basket of similar goods. It's a complicated formula that values a country's currency by what it can buy in that country, not just by its value as measured by its exchange rates. You can find every country’s purchasing power parity GDP in the CIA World Factbook.
If you want to compare GDP per capita over time, then you must use real GDP per capita. That removes the effects of price changes.
Why the Largest Economies Aren't the Richest per Capita
GDP per capita allows you to compare the prosperity of countries with different population sizes.
It's the third most populous country after China and India. The United States must spread its wealth among 328 million people. As a result, the 2018 U.S. GDP per capita is $62,518. That makes it the 12th most prosperous country per person.
China has the largest GDP in the world, producing $24.3 trillion in 2018. But its GDP per capita was only $18,120 because it has four times the number of people as the United States. It's the most populous country in the world, with 1.4 billion people.
The European Union is the world's second most prosperous economy, at $22 trillion. It's an economy made up of 28 separate countries. Its GDP per capita was only $43,120 because it must spread the wealth among 511 million people. India's GDP was $10.4 trillion but spread among its 1.3 billion people, its GDP per capita was $7,796. Japan's GDP is $5.6 trillion, the fifth largest in the world. Its GDP per capita was $44.550 since it has 126 million people.
Ten Highest GDP per Capita (2018)
The countries with the highest economic production per person have thriving economies and few residents. The top 10 GDP per capita according to the IMF are:
- Qatar – $124,487
- Macau – $118,099
- Luxembourg – $109,199
- Singapore – $98,299
- Brunei – $81,612
- Ireland – $77,670
- Norway - $74,318
- United Arab Emirates - $70,262
- Kuwait - $66,982
- Hong Kong - $64,794
Liechtenstein is listed by the CIA WorldFactbook as the world's richest country but isn't listed by the IMF. Its GDP per capita was $139,100 according to a 2009 estimate. Three other potential top 10 countries were also not listed by IMF: Monaco – $115,700 (2015 estimate), Bermuda – $99,400 (2016 estimate), and Isle of Man – $84,600 (2014 estimate).
Two of the top 10, Qatar and Brunei, are oil exporters with small populations. These countries were fortunate enough to have a large, abundant natural resource that is not labor intensive to develop. Since 2010, three oil-exporting countries, the United Arab Emirates, Kuwait, and Norway, have dropped off the list.
The other countries have worked hard to become regional financial centers. Low tax rates and friendly business climates have induced global corporate headquarters to locate there. Financial services are also not labor intensive to develop, so the wealth can be generated and distributed among a small population. In fact, Bermuda has less than 70,000 people.
The Ten Poorest Countries per Capita (2018)
The world's poorest countries, according to GDP per capita, are:
- Madagascar - $1,626
- Sierra Leone - $1,618
- South Sudan – $1,527
- Liberia –$1,327
- Mozambique - $1,295
- Niger – $1,218
- Malawi – $1,202
- Democratic Republic of the Congo – $816
- Burundi – $733
- Central African Republic – $712
Nine of the world's poorest countries are in Africa, and Madagascar is an island near the continent. There are many theories as to why African countries are so poor. One of the most credible is simply because of their size. Companies in small countries cannot build economies of scale. Unlike U.S. companies, they don’t have a large domestic market they can easily use as a test market.
Second, many African countries are landlocked, meaning they have no port. They must rely on neighboring countries to get their goods to market. That increases their cost, making their prices less competitive.