Measures of GDP and National IncomeA concept often used to make GDP comparable across countries is the GDP per capita, which is derived by simply dividing the GDP by the number of residents in a country. GDP per capita is often used as an indicator for a country’s standard of living although this is not necessarily an accurate measure. This is because fails to account for domestic inflation rates, and differences in the cost of living across countries. A better method for comparing living standards across countries is GDP per capita at purchasing power parity which is adjusted for cost of living, unlike GDP per capita.
A concept closely related to the GDP is the Gross National Product (GNP) (also known as Gross National Income (GNI)). In contrast to the GDP, which measures production on a geographic basis, the GNP is calculated based on ownership. Thus, the production valuce of a factory in China that is owned by an American company would be included in the GNP of the USA and in the GDP of China. GNP used to be the official measure of production in the U.S. but was been replaced by the GDP in 1991.
International ContextThe United States remains the largest economy in the world with a Gross Domestic Product of more than 22 trillion U.S. dollars. It is expected though that, given China’s GDP growth rates, the GDP of China will eventually outgrow the U.S. GDP within the next couple of years.
Ranking countries based on per capita GDP rather than economic size yields an entirely different result: In 2021, the three countries with the highest per capita GDP were Luxemburg, Ireland, and Switzerland. The United States of America was ranked 6th behind countries as small as Norway and Singapore. Meanwhile large, fast growing economies like India, Brazil and China are nowhere to be found in the Top 20.