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/income - GNP or GNI - 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, and tends to be large in countries that are "tax havens" (income reporting homes for corporations that are producing elsewhere). Ireland is a special case. Many foreign companies have set up operations in Ireland, which already has relatively low taxes, with a controlling shell company located in an even more tax-free nation, taking advantage of Ireland’s regulations that specify that the controlling owner, rather than the resident company, is subject to tax. For this reason companies such as Google, Yahoo, Microsoft, Forest Labs, and many others channel license revenues and royalties through Irish subsidiaries. These royalties and revenues are largely excluded from the tax base in Ireland (source).

 

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 (and Overcounted) 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. Tends to be larger in countries with weak institutions, high taxes and regulations, and limited formal emloyment opportunities. Because it is intentionally hidden, its size is not known accurately, but its difference from measured GDP can be estimated in several ways, including monetary circulation, electricity consumption, lights seen at night in outer space, survey methods, discrepencies in national income accounts, and multiple-indicator methods, such as the one used to compile the following table.


Shadow Economies   
 
Shadow Economy By Region

 

3.    Overcounting - Exaggeration - New (2022) high-quality research by Luis R. Martınez uses information from night lights visible in space to suggest that autocracies, with few checks/balances, overstate their economic growth rates, annually, by an average of 35%.

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 (PPP) - U.N. International Comparison Project revalues production in "international dollar" prices. Significantly increases relative sizes of GDPs for most low-income countries.


Converting GNI per capita to Dollars:
Three Methods Compared, 2021

Economy

Ex. Rate

Atlas

PPP

Singapore

64023

64010

102450

Qatar

65811

62310

100450

Norway

93058

83880

82840

Ireland

76015

76110

79370

Switzerland

91627

90600

75810

Macao

44953

46450

72940

Hong Kong

53358

54460

70600

United States

71159

70930

70480

Denmark

70360

68300

66720

Netherlands

56473

55200

63370

Sweden

62777

59540

61090

Germany

53020

51660

59630

Finland

54664

53510

55940

Australia

59773

57170

55660

Canada

51618

48310

51690

France

44948

44160

51660

UK

46307

44480

49420

Korea, Rep.

35387

35110

47770

Italy

36296

35990

46450

Japan

40812

42650

44570

Czechia

25621

24430

43360

Russia

12100

11610

32070

Mexico

9781

9590

19740

China

12442

11880

19160

Iran

4105

3530

16540

Brazil

7305

7740

15600

Ukraine

4454

4120

13860

Egypt, Arab Rep.

3585

3350

12320

India

2221

2150

7130

Nigeria

1986

2080

5200

Kenya

2051

2080

5130

Ethiopia

920

940

2530

Niger

601

590

1330

Mozambique

482

480

1320

Somalia

445

430

1240

Congo, Dem. Rep.

542

550

1110

Central Af. Rep.

493

480

980

Burundi

222

220

780

Source: World Bank, World Development Indicators




 


 

D.   Index number problem - Results of comparisons are affected by price weights.  According to the Gerschenkron Effect, the GNP (or other production/consumption aggregate) 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.   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 (mean of years of schooling for adults older than 24 and expected years of schooling for children of school entering age), and access to resources (GNI per capita at purchasing power parity, measured on a logarithmic scale to reflect diminishing returns from income).

C.   OECD Better Life Index - Developed by OECD, this is perhaps the broadest of all of the synthetic indices, because it has eleven components: Housing, Income, Jobs, Community, Education, Environment, Civic Engagement, Health, Life Satisfaction, Safety, and Work-Life Balance. However, because it requires such a variety of data, it's available for only 41 countries (mainly those that are members of OECD) and many of the data are missing for those. The interactive web site is available here and the underlying data are available here.  Currently, with equal weights for the indicators, the top ranking countries are Norway, Iceland, Switzerland, and Sweden. Among the 41 covered countries, the lowest scores go to South Africa, Colombia, Mexico, and Turkey.

D.   Happy Planet Index - Originally developed by the New Economics Foundation in the UK, and now maintained by the Wellbeing Alliance,this index focuses on life expectancy (LE), survey-based life satisfaction (LS), and "ecological footprint" (EF, the average amount of land needed, per head of population,to sustain a country consumption patterns and CO2 emissions). The formula is roughly (LE x LS)/EF .  This leads to a VERY different set of country rankings than those related to GDP, HDI, or "Better Life."  By the sustainability-based Happy Planet ranking, Costa Rica, Vanuatu, and Colombia are at the top of the 2019 list, and Norway drops to number 38. China is ranked 94th and the USA is ranked 122nd.

E.   Survey-Based Wellbeing - Many options are available here, including the one included in the Happy Planet Index. However, an interesting new study from David Blanchflower of Dartmouth College and Alex Bryson of University College London (IZA, December 2022) draws data from Gallup World Poll and the US Daily Tracker Poll, combining four positive affect measures - life satisfaction, enjoyment, smiling and being well-rested – and four negative affect variables – pain, sadness, anger and worry, pooling over 2008-2017 for an especially broad measure. According to this ranking, people in Hawaii, Minnesota, and a few other U.S. states are more satisfied than people on average in any other country. Outside of the U.S., the happiest places are Taiwan, Austria, and the Netherlands. The U.S. ranks 150th on the full list. The least satisfied Americans, by their measure, are in West Virginia, and the least satisfied countries in the world are said to be Iraq, South Sudan, Armenia, Togo and Central African Republic.


Human Development Index and its components

 

 

Human Development Index (HDI)

Life expectancy at birth

Expected years of schooling

Mean years of schooling

Gross national income (GNI) per capita

HDI rank

Country

Value

(years)

(years)

(years)

(2017 PPP $)



2021

2021

2021

2021

2021

1

Switzerland

0.962

84.0

16.5

13.9

66,933

2

Norway

0.961

83.2

18.2

13.0

64,660

3

Iceland

0.959

82.7

19.2

13.8

55,782

4

Hong Kong

0.952

85.5

17.3

12.2

62,607

5

Australia

0.951

84.5

21.1

12.7

49,238

6

Denmark

0.948

81.4

18.7

13.0

60,365

7

Sweden

0.947

83.0

19.4

12.6

54,489

8

Ireland

0.945

82.0

18.9

11.6

76,169

9

Germany

0.942

80.6

17.0

14.1

54,534

10

Netherlands

0.941

81.7

18.7

12.6

55,979

11

Finland

0.940

82.0

19.1

12.9

49,452

12

Singapore

0.939

82.8

16.5

11.9

90,919

18

United Kingdom

0.929

80.7

17.3

13.4

45,225

19

Japan

0.925

84.8

15.2

13.4

42,274

19

Korea (Republic of)

0.925

83.7

16.5

12.5

44,501

21

United States

0.921

77.2

16.3

13.7

64,765

22

Israel

0.919

82.3

16.1

13.3

41,524

27

Spain

0.905

83.0

17.9

10.6

38,354

28

France

0.903

82.5

15.8

11.6

45,937

30

Italy

0.895

82.9

16.2

10.7

42,840

35

Saudi Arabia

0.875

76.9

16.1

11.3

46,112

52

Russian Federation

0.822

69.4

15.8

12.8

27,166

66

Thailand

0.800

78.7

15.9

8.7

17,030

76

Iran

0.774

73.9

14.6

10.6

13,001

77

Ukraine

0.773

71.6

15.0

11.1

13,256

79

China

0.768

78.2

14.2

7.6

17,504

86

Mexico

0.758

70.2

14.9

9.2

17,896

97

Egypt

0.731

70.2

13.8

9.6

11,732

106

Palestine, State of

0.715

73.5

13.4

9.9

6,583

117

Botswana

0.693

61.1

12.3

10.3

16,198

120

Venezuela

0.691

70.6

12.8

11.1

4,811

121

Iraq

0.686

70.4

12.1

7.9

9,977

132

India

0.633

67.2

11.9

6.7

6,590

163

Nigeria

0.535

52.7

10.1

7.2

4,790

175

Ethiopia

0.498

65.0

9.7

3.2

2,361

183

Yemen

0.455

63.8

9.1

3.2

1,314

184

Burkina Faso

0.449

59.3

9.1

2.1

2,118

185

Mozambique

0.446

59.3

10.2

3.2

1,198

186

Mali

0.428

58.9

7.4

2.3

2,133

187

Burundi

0.426

61.7

10.7

3.1

732

188

Central African Republic

0.404

53.9

8.0

4.3

966

189

Niger

0.400

61.6

7.0

2.1

1,240

190

Chad

0.394

52.5

8.0

2.6

1,364

191

South Sudan

0.385

55.0

5.5

5.7

768




Happy Planet Index 2019

Alternative Rankings of Living Standards


GNI PPP 2021

HDI 2021

Well-being 2008-2017

Happy Planet 2019

Singapore

1

12

19

66

Qatar

2

41

76

113

Luxembourg

3

16

22

142

Ireland

4

8

9

34

Switzerland

5

1

6

3

United States

6

20

91

121

Norway

7

2

4

37

Hong Kong

8

4

27

137

United Arab Em.

9

25

17

134

Denmark

10

6

11

68

Netherlands

11

10

2

17

Iceland

12

3

3

51

Germany

13

9

18

28

Sweden

14

7

8

40

Austria

15

24

1

58

Kuwait

16

47

49

139

Belgium

17

13

38

88

Finland

18

11

14

32

Australia

19

5

21

84

Canada

20

15

20

101

Saudi Arabia

21

36

69

93

France

22

27

65

30

United Kingdom

23

17

55

13

Korea (Rep. of)

24

19

37

106

New Zealand

25

14

13

10

Italy

26

29

83

39

Japan

27

18

10

56

Israel

28

21

97

48

Slovenia

29

23

68

52

Bahrain

30

34

107

138

Malta

31

22

93

82

Czechia

32

31

66

57

Spain

33

26

73

29

Cyprus

34

28

101

44

Estonia

35

30

54

132

Lithuania

36

35

106

124

Portugal

37

37

82

112

Poland

38

33

59

111

Latvia

39

38

84

135

Hungary

40

43

109

67

Türkiye

41

45

118

98

Slovakia

42

42

87

60

Croatia

43

39

88

63

Romania

44

49

127

62

Greece

45

32

115

46

Russia

46

48

35

130

Panama

47

55

12

5

Malaysia

48

56

24

91

Chile

49

40

75

65

Kazakhstan

50

50

30

117

Trinidad & Tobago

51

51

33

143

Bulgaria

52

62

99

102

Mauritius

53

58

64

31

Uruguay

54

53

36

9

Argentina

55

44

42

42

Montenegro

56

46

121

97

Costa Rica

57

52

28

1

Serbia

58

59

138

25

Belarus

59

54

80

85

Dominican Rep.

60

69

105

18

Mexico

61

73

29

22

China

62

68

7

90

Thailand

63

60

5

27

Botswana

64

95

74

141

N. Macedonia

65

67

108

79

Libya

66

85

114

87

Bosnia & Herz.

67

64

128

53

Moldova

68

70

131

36

Georgia

69

57

116

75

Colombia

70

75

50

2

Brazil

71

74

85

20

Azerbaijan

72

77

104

49

Albania

73

61

120

35

Gabon

74

90

137

105

Ukraine

75

66

124

99

Armenia

76

72

148

19

Turkmenistan

77

78

63

140

Iran

78

65

143

81

South Africa

79

88

26

128

Sri Lanka

80

63

46

59

Paraguay

81

86

16

54

Peru

82

71

102

14

Egypt

83

81

145

83

Indonesia

84

92

23

43

Algeria

85

76

92

61

Mongolia

86

80

25

149

Ecuador

87

79

56

4

Tunisia

88

82

123

78

Iraq

89

99

149

69

Jordan

90

84

122

80

Lebanon

91

91

129

115

Bhutan

92

104

45

126

Philippines

93

94

78

11

Jamaica

94

89

89

6

Guatemala

95

108

51

7

Namibia

96

110

72

125

El Salvador

97

102

60

12

Bolivia

98

96

117

72

Uzbekistan

99

83

15

23

Viet Nam

100

93

32

47

Laos

101

111

41

86

Eswatini

102

113

44

129

Morocco

103

101

86

38

India

104

106

111

127

Palestine

105

87

146

41

Ghana

106

107

67

109

Nicaragua

107

103

71

15

Bangladesh

108

105

95

21

Honduras

109

109

58

8

Côte d'Ivoire

110

123

130

107

Mauritania

111

122

47

131

Venezuela

112

98

31

45

Nigeria

113

128

52

136

Pakistan

114

125

134

71

Kyrgyzstan

115

97

39

24

Tajikistan

116

100

57

16

Kenya

117

118

34

70

Cambodia

118

114

119

50

Nepal

119

112

113

26

Myanmar

120

116

77

103

Zimbabwe

121

115

62

147

Cameroon

122

117

126

104

Sudan

123

135

112

108

Benin

124

130

139

95

Senegal

125

134

48

33

Zambia

126

120

96

133

Comoros

127

121

70

89

Congo-Brazzaville

128

119

132

55

Haiti

129

127

140

118

Lesotho

130

132

90

148

Tanzania

131

124

53

123

Guinea

132

142

135

119

Ethiopia

133

137

79

92

Rwanda

134

129

43

114

Uganda

135

131

40

73

Togo

136

126

147

122

Mali

137

146

61

110

Burkina Faso

138

144

133

94

Afghanistan

139

140

125

145

Sierra Leone

140

141

144

146

Madagascar

141

136

100

77

Malawi

142

133

81

116

Chad

143

149

136

144

Yemen

144

143

141

74

Liberia

145

138

142

64

Niger

146

148

98

96

Mozambique

147

145

110

76

Congo DR-Kinshasa

148

139

103

100

Burundi

149

147

94

120

Sources and Measures: GNI (in 2017 PPP $) and HDI from U.N. Development Programme, hdr.undp.org; Wellbeing from David G. Blanchflower and Alex Bryson, “Wellbeing Rankings,” IZA 12/2022; and Happy Planet from happyplanetindex.org.