Registered office: International House, Queens Road, Brighton, BN1 3XE. This means that there is 20 times as much money per person in the UK compared to in India 2. It is also a fairly decent indicator of average standard of living in a country. As a result of globalization, we all enjoy many advantages. The difference between GDP and per capita GDP, GPI and GDP. Over time, consumers could spend more replacing cheap goods than they would have if they had bought higher-quality goods in the first place, and GDP would grow as a result of waste and inefficiency. ILLUSTRATION 2.3: One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. GDP is a well-respected, clear assessment of the wealth of a nation’s economy. technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. Real GDP per capita calculates an average figure, due to this it is not possible to get the output from it regarding the distribution of the income among the people of the country i.e., it does not tell that how the wealth is spread in the country. GDP can be expressed in two terms, real GDP and nominal GDP. Per capita GDP tells you, on average how much output each person provides to the economy, and is therefore a measure of economic health. GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. Globalization gives us many advantages and disadvantages. Similarly, while GDP per capita is not a country’s measure of personal income, it can be used to make observations about it. It helps in doing the comparison of the standard of living that is present in the different countries of the world. Real GDP Per Capita is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country. GDP doesn't account for quality of goods: Consumers may buy cheap, low-quality, short-lived products repeatedly instead of buying more expensive, longer-lasting goods. Due to this Real GDP per capita does not tell the exact details of the average income of the country per citizen in a year. This value is one of the useful measures for the leaders of the world because it helps the leaders in deciding where the money needs to be spent to use it in the best possible manner. GDP measures exactly what it is said to measure, so it's hard to have disadvantages, but for the purpose of answering: 1) It doesn't take into account illegal and black market trading. … Real GDP Per Capita is the resulting value arrived at by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period. © Copyright Get Revising 2020 all rights reserved. finding it a bit difficult. Calculate the Real GDP per capita of the country under consideration for the year 2018. Thus unless national income is evenly distributed, per capita income cannot serve as a … Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. This has disenchanted economists about its efficacy as a true index of development and welfare. It is a Good indicator for showing the provision of the services. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. So the real GDP per capita of the country is $ 40,000 for the year 2018. While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. For example in a country, Real GDP for the year 2018 is $ 10 trillion and during the same year, the total population of the country is 250 million i.e., there are 250 million people in the country during the year 2018. When the GDP is adjusted for inflation, it is called nominal GDP. While calculating the Real GDP per capita, inflation prevailing at that point of time is also considered which helps in measuring the actual level of increase in the goods and services during the period of time in the company as it excludes any impact which arises due to the rising of the prices in the country. The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently. Sweden ISN'T Socialist! Here real GDP can't measure Standard of living. 1st advantage China has a more developed than in many developing countries and the balance of trade, China's much faster rate than India has been since the 1950s, manufacturing growth. Advantages and Disadvantages of Globalization. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. GDP per capita is the gross domestic product of a country, as divided equally between each citizen (capita)Advantage - represents a country's economic productivity and the advancement of its industryAdvantage - easy to rank and measureDisadvantage - doesn't include the contributions of the informal economy (70% in African cities)Disadvantage - can hide inequalities within a nation (e.g… », ~| Guess What? A rise in th GDP per capita generally means economic growth and a rise in standard of living for many of the people in the country. Therefore, GDP may overestimate living standards in a country. Although the GDP per capita of a country may be very high, it may be the case that 10 percent of the country earn millions of times more than the other 90 percent of the country's inhabitants, who earn extremely low … GDP per capita is an average, and thus ignores the distribution of incomes in a given country. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. Student videos. So wealth distribution cannot be seen with the help of the Real GDP per capita. So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. 806 8067 22, Registered office: International House, Queens Road, Brighton, BN1 3XE, geography - global development - how development is measured, Economics essay help on GDP and development! Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. Disadvantages of the Real GDP Per Capita. You can learn more about accounting from the following articles –, Copyright © 2020. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. There are several "disadvantages" if that's what you want to call them. Disadvantages. Inaccurate Data GDP only takes reported consumption into account. (Source: John Sloman, 2006) Is national happiness going to be a better way to measure economies than GDP, in 2020? The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. Advantages of GDP are many, with some of the more important ones being a way to define the business cycle, the ability to understand shifts in a country’s economy, and a measurement for competitiveness in a global environment. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. Often used to rank countries to establish a fair system of aid payments. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Comparing cross-country data can indicate human welfare distribution. Real GDP reflects the value which has been adjusted for inflation while nominal GDP reflects the value without considering inflation (Abel, Bernanke and McNabb, 1998). Not all economists are in agreement with the use of GDP as a main economic measurement tool. Disadvantages include government spending as a positive portion of GDP along with natural disasters and the fact that it does not take into account work done outside of a monetary transaction (housewife cleaning the house and making dinner for example). By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Christmas Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. Is it time to end our fixation with GDP and growth? One method of calculation is to consider GDP at its purchasing power parity (PPP). GDP or gross domestic product has always served as the most important factor in the calculation of the overall economic condition of the citizens, their standard of living and growth. », Economics Assignment . Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. 9 Advantages of Globalization. [Year 12 Enrichment Task] 21st May 2020. Fifty years ago, the city-state of Singapore was undeveloped and lacks both arable land and natural resources with a GDP per capita of less than US $320. |~ », Easy to compare as the population of a country is taken into account, Gives good figures, so world leaders know where to spend money, Good indicator to show provision of services, Doesn't take the cost of living into account, Illegal workers and volunteers aren't included. GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. Change in per capita gdp is a pure measure of productivity because it controls for population size. In 1980, when China and India in the gross domestic product (GDP) per capita more or less equal, China has enjoyed a strong advantage in manufacturing. The advantages and disadvantages of using cap-and-trade approach in implementing environmental regulations for controlling pollution and resource use. The resulting value by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period is known as Real GDP Per Capita. Show more. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. From the Blog. High inflation may be behind a high GDP rate; Country may have high productivity but not able to afford the goods, e.g. Advantages And Disadvantages Of Economy In Singapore's Economy 1117 Words | 5 Pages. It is hard to determine if consumers are receiving quality goods that do not cause them more money to replace a low-good with a higher-quality good. There are several different advantages which are as follows: Limitations and drawbacks include the following: Real GDP per Capita helps in measuring almost everything that the country creates in the entire year and is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country but at the same time it does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. GDP per capita is often used as an indicator of welfare in an economy. GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. 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