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 as Percentage
of GDP, 2010

World Development Indicators

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 economy, black market, second economy, 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.
 

Converting GNI per Capita to Dollars:
Three Methods Compared
(U.S. Dollars per person in 2006)

D.   Index number problem - Results of comparisons are affected by price weights.  According to the Gershchenkron 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.   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). For current HDI rankings, look here.

B.   Reported Life Satisfaction - Gallup international survey asks, "Did you feel well-rested yesterday? Were you treated with respect all day yesterday? Did you smile or laugh a lot yesterday? Did you learn something interesting yesterday? Did you experience feelings of enjoyment a lot of the day yesterday?" In the ranking below, they report the percentage of people in each country who responded positively to all of those questions.

Alternative Measures of the Standard of Living, 2010

Countries	GDP/PPP	GDP Rank	HDI Rank	Happiness Rank
Qatar	69,798	1	21	46
Luxembourg	68,748	2	18	24
Singapore	52,170	3	14	147
Kuwait	45,623	4	25	17
UAE	42,353	5	22	29
USA	42,079	6	2	35
Hong Kong	41,714	7	11	72
Netherlands	36,997	8	3	14
Ireland	35,993	9	5	15
Canada	35,223	10	8	11
Australia	34,409	11	1	43
Sweden	33,996	12	7	34
Germany	33,414	13	6	49
Belgium	32,837	14	13	26
UK	32,475	15	19	30
Denmark	32,232	16	12	16
Finland	31,497	17	16	52
Japan	30,965	18	9	58
France	29,484	19	15	50
Spain	26,968	20	17	53
Korea (Republic of)	26,774	21	10	99
New Zealand	24,818	22	4	21
Oman	24,559	23	37	18
Czech Republic	23,635	24	20	100
Trinidad/Tobago	23,168	25	34	5
Saudi Arabia	20,534	26	29	54
Chile	14,540	27	23	33
Argentina	14,363	28	24	23
Russian Fed.	14,199	29	28	117
Malaysia	13,214	30	33	13
Uruguay	12,642	31	26	44
Panama	12,639	32	30	1
Belarus	12,505	33	27	141
Botswana	12,463	34	50	69
Mexico	12,441	35	31	56
Venezuela	10,973	36	35	4
Costa Rica	10,453	37	32	10
Brazil	10,093	38	39	63
South Africa	9,497	39	52	39
Peru	8,558	40	36	38
Colombia	8,479	41	42	12
Dominican Rep	8,387	42	43	25
Thailand	7,673	43	45	6
Ecuador	7,201	44	41	9
Jamaica	7,001	45	38	41
China	6,819	46	44	36
El Salvador	5,978	47	46	3
Swaziland	5,342	48	58	37
Armenia	4,900	49	40	146
Paraguay	4,648	50	47	2
Guatemala	4,297	51	55	7
Indonesia	3,885	52	53	19
Philippines	3,560	53	48	8
Honduras	3,519	54	51	20
Iraq	3,195	55	56	145
India	3,039	56	57	127
Uzbekistan	2,754	57	49	45
Nicaragua	2,499	58	54	32
Pakistan	2,411	59	59	123
Nigeria	2,135	60	62	27
Kenya	1,481	61	60	40
Lesotho	1,436	62	63	31
Zambia	1,401	63	65	22
Tanzania	1,293	64	61	42
Haiti	992	65	64	137
Mali	967	66	66	28