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 Irelandís 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).

GNP % of GDP 2019

 

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. 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

 

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, 2019


Ex. Rate

Atlas

PPP

Singapore

59216

59590

92270

Qatar

60530

61180

91670

Bermuda

118717

117730

86600

Luxembourg

73351

73910

77570

Switzerland

83614

85500

72390

UAE

43310

43470

70430

Ireland

62402

64000

70010

Norway

78556

82500

69610

USA

66076

65850

66080

Hong Kong

51228

50800

65730

Denmark

61946

63950

61960

Germany

47709

48580

57810

Sweden

52909

55780

57220

France

41330

42450

50460

Saudi Arabia

23367

22840

49520

UK

41577

42220

47880

Japan

41710

41710

44810

Czech Rep.

22053

21940

40640

Russia

11226

11260

28270

Turkey

8970

9690

27660

Chile

14296

15010

24140

Mexico

9657

9480

19990

Botswana

7354

7650

17140

China

10234

10410

16790

Libya

7826

7640

16130

Brazil

8488

9130

14890

Vietnam

2562

2590

7910

India

2079

2120

6920

Nigeria

2159

2030

5190

Niger

583

600

1330

Liberia

553

580

1320

Mozambique

497

490

1310

Congo DR

560

530

1110

Malawi

397

380

1080

C. African Rep.

507

520

1060

Burundi

265

280

790

Source: World Bank, World Development Indicators, online.


GDP Alternatives

 


 

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.   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 (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).

D.   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 about 40 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, Australia, Iceland, Canada, and Denmark.

E.   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.


 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 $)


2019 2019 2019 2019 2019
1 Norway 0.957 82.4 18.1 12.9 66,494
2 Ireland 0.955 82.3 18.7 12.7 68,371
2 Switzerland 0.955 83.8 16.3 13.4 69,394
4 Hong Kong, China  0.949 84.9 16.9 12.3 62,985
4 Iceland 0.949 83.0 19.1 12.8 54,682
6 Germany 0.947 81.3 17.0 14.2 55,314
7 Sweden 0.945 82.8 19.5 12.5 54,508
8 Australia 0.944 83.4 22.0 12.7 48,085
8 Netherlands 0.944 82.3 18.5 12.4 57,707
10 Denmark 0.940 80.9 18.9 12.6 58,662
11 Finland 0.938 81.9 19.4 12.8 48,511
11 Singapore 0.938 83.6 16.4 11.6 88,155
13 United Kingdom 0.932 81.3 17.5 13.2 46,071
14 Belgium 0.931 81.6 19.8 12.1 52,085
14 New Zealand 0.931 82.3 18.8 12.8 40,799
16 Canada 0.929 82.4 16.2 13.4 48,527
17 United States 0.926 78.9 16.3 13.4 63,826
18 Austria 0.922 81.5 16.1 12.5 56,197
19 Israel 0.919 83.0 16.2 13.0 40,187
19 Japan 0.919 84.6 15.2 12.9 42,932
25 Spain 0.904 83.6 17.6 10.3 40,975
26 France 0.901 82.7 15.6 11.5 47,173
27 Czechia 0.900 79.4 16.8 12.7 38,109
35 Poland 0.880 78.7 16.3 12.5 31,623
40 Saudi Arabia 0.854 75.1 16.1 10.2 47,495
51 Kazakhstan 0.825 73.6 15.6 11.9 22,857
52 Russia 0.824 72.6 15.0 12.2 26,157
70 Cuba 0.783 78.8 14.3 11.8 8,621
70 Iran 0.783 76.7 14.8 10.3 12,447
74 Mexico 0.779 75.1 14.8 8.8 19,160
84 Brazil 0.765 75.9 15.4 8.0 14,263
85 China 0.761 76.9 14.0 8.1 16,057
100 Botswana 0.735 69.6 12.8 9.6 16,437
114 South Africa 0.709 64.1 13.8 10.2 12,129
116 Egypt 0.707 72.0 13.3 7.4 11,466
131 India 0.645 69.7 12.2 6.5 6,681
143 Kenya 0.601 66.7 11.3 6.6 4,244
154 Pakistan 0.557 67.3 8.3 5.2 5,005
161 Nigeria 0.539 54.7 10.0 6.7 4,910
169 Afghanistan 0.511 64.8 10.2 3.9 2,229
170 Haiti 0.510 64.0 9.7 5.6 1,709
170 Sudan 0.510 65.3 7.9 3.8 3,829
185 Burundi 0.433 61.6 11.1 3.3 754
185 South Sudan 0.433 57.9 5.3 4.8 2,003
187 Chad 0.398 54.2 7.3 2.5 1,555
188 Central African Rep 0.397 53.3 7.6 4.3 993
189 Niger 0.394 62.4 6.5 2.1 1,201



Happy Planet Index 2019

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 Planet 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.