Ask an Economist #3

[Godwynn]

Economic growth per capita. Never heard of that concept anywhere.

For example:

There are two economies:

Economy A has a GDP of 1,000,000
Economy B has a GDP of 1,000,000

Economy A grows by 5% = 1,050,000
Economy B grows by 3% = 1,030,000

Just looking at this you would say Economy A is grown more. That is quite meaningless. Here's way.

Economy A started with 100,000 people and ended the year with 103,000.
Economy B started with 100,000 people and ended the year with 99,000.

So, in the beginning (Civ I music here), both economies had a GDP per capita of 10.

However, at the end of the year the GDP per capita is as follows:

Economy A: 10.194
Economy B: 10.404

So the average person in Economy B is better off, even though the entire economy grew by less.

That is just a rough example and I fully expect Integral to come in here like a freight train and tear my example to shreds. It is also a very basic example that does not take into account other variables besides economic growth and gdp growth.

I hope this helps you understand GDP growth per capita.

EDIT: I'm also not so confident about my math. Feel free to point out my mathematical mistakes if there are any.

 

[Theige]

Economic growth per capita. Never heard of that concept anywhere.

The change in GDP/capita is the economic growth per capita.

GDP per capita is by far the most widely used metric for measuring how well-off people are in a given country.

 

[Integral]

Economic growth per capita. Never heard of that concept anywhere.

Growth per capita is the baseline metric for development economics, and indeed makes the most sense. If the economy is growing by 10% per year, but the population is growing at 15% per year, can you really say that the average person is getting better off? You're spreading the growing economy around a population that is growing even faster. By contrast, if the economy is growing by 4% per year and the population is growing by 1% per year, absolute growth is lower than in the first case but growth per capita is positive.

As an aside, you can estimate GDP growth per capita by subtracting population growth from GDP growth. So the first economy in my example is shrinking by 5% per capita per year, while the second is growing by 3% per capita per year. This is also the logic of why China has to grow at 6% per year just to "stay in place" - because they are urbanizing at about that rate.

In the US, growth has run at a steady clip (setting aside the Depression and WWII for a moment) of about 1.8% per person per year since the late 1880s. Growth of the economy as a whole has been about 3% per year.

edit: xpost with Godwynn. But this time, I have the graph.

 

[Godwynn]

In my humble attempt to one-up Integral, I have found out the GDP per capita growth rates of popular countries here on CFCOT for 2006:

Source is EarthTrends.

The fastest growing (per capita) is Israel, Ireland, and Germany.

The slowest growers for 2006 was Australia, Canada, and the United States.