COMPARATIVE ECONOMIC STATISTICS:
NATIONAL INCOME AND THE STANDARD OF LIVING

I.    General Problems of statistical comparison

A.   Definitions and accounting standards

B.   Methods of data collection and secrecy

C.   Theoretical, methodological issues (index number problem)

 II.  Uses of Income Comparisons:

A.   As a measure of the standard of living (i.e., GDP per capita).

B.   As a measure of economic size or power (i.e., total GDP).

C.   As a denominator in ratios of trade dependency, debt burden, military spending, etc.

III. Value-Based National Income Concepts

A.   National Income Definitions

1.    Gross domestic product - Total value of all final goods and services produced in the country in a year, where "country" is defined a geographically.  Now the standard concept used by the United Nations, in its standardized System of National Accounts, by the EC, and by most individual countries, including the U.S. 

2.    Gross national product - Similar to GDP, but "nation" includes residents in the country for at least 6 months.  Formerly used by U.S. Commerce Department.  The difference between GNP and GDP is large in countries that pay or receive large incomes from international investments or remittances.

GNP/GDP

 

3.    Net material product - The total value, measured in final selling prices, of final material production (most services excluded), net of depreciation.  Was used by most socialist countries.  Soviet GNP was only about half the U.S. level, but NMP was about two thirds.

B.   Uncounted Income and Production

1.    Goods produced but not sold - Production by households for family consumption.  If counted, would increase income by 20-33% in U.S. and perhaps 40-50% in many developing countries.

2.    Underground, shadow, or second economy, black market, or informal sector - Production concealed to avoid taxation or regulation.  In socialist countries, the underground economy filled gaps in the plan.  Recent estimates suggest that counting underground production would boost measured GDP in 2005 by about 37% in developing countries, 39% in transitional economies, and 15% in OECD countries.  Shadow production is estimated at more than 50% of GDP in Azerbaijan, Belarus, Bolivia, Cambodia, Congo, Georgia, Haiti, Nigeria, Panama, Peru, Tanzania, Thailand, Ukraine, and Zimbabwe.  
 

C.   Conversion of National Incomes to a Single Currency

1.    Official or market exchange rates - In socialist countries, prices and exchange rates were set by central planners.  In market economies, rates are influenced by government intervention and market fluctuations.

2.    Atlas Method - Three-year adjusted average of market rates to reduce effects of year-to-year exchange fluctuations

3.    Purchasing power parity - U.N. International Comparison Project revalues production in "international dollar" prices. Significantly increases relative sizes of GDPs for most low-income countries.
UPDATE: The newest ICP results have substantially revised the estimates of Chinese and Indian GDP and growth:
Look here and here.
 

Converting GNI per Capita to Dollars:
Three Methods Compared, 2014

 

GNI/GNP
PPP

GNI/GNP
Atlas

GNI/GNP
current $

Qatar

134420

92200

92451

Macao

120140

76270

82549

Singapore

80270

55150

54588

Kuwait

79850

49300

47524

UAE

67720

44600

43993

Norway

67100

103620

99505

Luxembourg

65570

75960

77660

Switzerland

59160

84720

85076

Hong Kong

56570

40320

41252

United States

55900

55230

55897

Netherlands

48860

51860

52796

Germany

47460

47590

48868

Sweden

46870

61570

60943

Denmark

46850

61330

62467

Australia

44700

64600

60323

Canada

44350

51630

49437

France

40100

42950

43568

United Kingdom

39500

43390

45453

Japan

38120

42000

37681

Italy

35450

34580

35213

Korea, Rep.

33650

27090

28187

Spain

33490

29390

29601

Israel

33300

35320

36760

Slovenia

30360

23580

23964

Czech Republic

28740

18350

17973

Estonia

27490

19010

19685

Slovak Republic

27410

17750

17903

Lithuania

26390

15410

15719

Poland

24430

13680

13862

Hungary

23960

13340

13406

Latvia

23360

15250

15564

Russian Fed.

22160

13220

12470

Kazakhstan

21710

11850

11291

Chile

21320

14910

14032

Turkey

19560

10830

10394

Mexico

16840

9870

10041

Botswana

16030

7240

7093

Brazil

15570

11790

11491

Iraq

15100

6530

6437

China

13170

7400

7569

South Africa

12700

6800

6309

Egypt

10280

3210

3284

Indonesia

10190

3630

3383

Ukraine

8560

3560

2871

Nigeria

5710

2970

3095

India

5630

1570

1562

Pakistan

5090

1400

1392

Tajikistan

2660

1080

1102

Afghanistan

2000

680

655

Ethiopia

1500

550

572

Mozambique

1120

600

578

Niger

910

410

415

Malawi

790

250

245

Burundi

770

270

286

Liberia

700

370

382

Congo, DR

650

380

387

Central Af. Rep.

600

320

360

 World Bank, World Development Indicators

 


 

D.   Index number problem - Results of comparisons are affected by price weights.  According to the Gerschenkron Effect, the GNP of country X will appear relatively larger if the prices of country Y are used to sum the products of each country.

IV. Alternative Measures of the Standard of Living

A.   National income per capita - see above.

B.   Physical Quality of Life Index (PQLI) - Developed by the Overseas Development Council.  An unweighted average of index numbers for the infant mortality rate, life expectancy, and adult literacy.  Emphasizes human results rather than consumption, and implicitly reflects the income distribution.

C.   Human Development Index (HDI) - Developed by the United Nations Development Program, and published in its annual Human Development Report.  Similar in some respects to PQLI, it includes three components: health (life expectancy), educational attainment (two-thirds by literacy and one-third by enrollment rates), and access to resources (GDP per capita at purchasing power parity, adjusted to reflect diminishing returns from income).

Alternative Measures of the Standard of Living in 2014

GNP
Exchange Rate

rank

GNP-Atlas

rank

GNP-PPP

rank

HDI

rank

Well-Being

rank

Norway

103630

1

99516

1

66330

3

0.944

1

7.6

1

Netherlands

51890

5

52828

5

48260

6

0.922

2

7.5

3

Germany

47640

7

48917

6

46850

7

0.916

3

6.7

8

United States

55200

3

55864

3

55860

5

0.915

4

7.2

4

Singapore

55150

4

54592

4

80270

1

0.912

5

6.5

11

Hong Kong

40320

11

41250

10

56570

4

0.910

6

5.6

14

Sweden

61610

2

60987

2

46750

8

0.907

7

7.5

2

United Kingdom

43430

8

45491

8

39040

10

0.907

8

7.0

5

Japan

42000

10

37684

11

37920

11

0.891

9

6.1

12

France

42960

9

43574

9

39610

9

0.888

10

6.8

6

Poland

13690

13

13868

13

23930

12

0.843

11

5.8

13

Chile

14910

12

14036

12

21580

14

0.832

12

6.6

10

Hungary

13340

14

13404

14

23630

13

0.828

13

4.7

19

Kuwait

49300

6

47524

7

79850

2

0.816

14

6.6

9

Mexico

9870

15

10041

15

16640

15

0.756

15

6.8

7

China

7400

16

7568

16

13170

16

0.727

16

4.7

20

Egypt

3050

17

3118

17

10260

17

0.690

17

3.9

30

India

1570

18

1566

18

5630

18

0.609

18

5.0

16

Madagascar

440

28

435

28

1400

24

0.510

19

4.6

22

Zimbabwe

840

19

857

19

1650

22

0.509

20

4.8

17

Togo

570

25

573

25

1290

26

0.484

21

2.8

34

Haiti

820

20

827

20

1730

20

0.483

22

3.8

31

Uganda

670

23

694

21

1720

21

0.483

23

4.2

23

Rwanda

700

21

688

22

1630

23

0.483

24

4.0

26

Afghanistan

680

22

658

23

2000

19

0.465

25

4.8

18

Malawi

250

34

244

34

790

30

0.445

26

5.1

15

Congo, Dem. Rep.

380

30

383

30

650

33

0.433

27

4.0

29

Liberia

370

31

380

31

700

32

0.430

28

4.2

24

Guinea-Bissau

550

26

565

26

1380

25

0.420

29

4.0

27

Mozambique

600

24

575

24

1120

28

0.416

30

4.7

21

Guinea

470

27

499

27

1130

27

0.411

31

4.0

28

Burundi

270

33

290

33

770

31

0.400

32

3.8

32

Central Af. Rep.

320

32

355

32

600

34

0.350

33

3.6

33

Niger

410

29

415

29

910

29

0.348

34

4.1

25

Sources:  GNP measures - World Bank, World Development Indicators; HDI (Human Development Index) - UN Development Program, Human Development Report Database; Well-Being  - Happy World Index measure of well-being, based on arithmetic mean of responses to the Ladder of Life question in the Gallup World Poll.  Well-being surveys were taken in 2012.