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.
 

 


 

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.