What GNP per capita does not show

Chart 3.

GNP per capita helps measure the material output of a country, but it does not show what kinds of goods and services the country produces, whether all people share equally in the wealth of a country, or whether these people lead fulfilling lives.

Despite large differences in the GNP per capita of high-, middle-, and low-income countries, the trend across all countries is for the richest 20 percent of the population to earn incomes that are many times higher than the poorest 20 percent. To get a better picture of the standard of living in a country, you must go beyond GNP per capita to see how equitably income is distributed among all the people. Chart 3 depicts distribution patterns typical of low-, middle-, and high-income countries around the world.

GNP does not always capture activity in the informal economy, such as unreported cash payments for goods and services, bartering, or black market trading. The informal sector can generate a lot of income that never shows up in standard economic indicators. Many countries are encouraging programs that help people in the informal sector get loans and business training, with the goal that they eventually become part of the formal economy. (Case Study)

Some more issues...

Photo 2.

Going beyond GNP per capita helps reveal other important development issues. For example, GNP per capita is given in dollars, but a dollar may buy more in one country than in another. To compare the actual purchasing power of per capita incomes across countries, you can look at purchasing power parity (PPP). Another issue is that GNP per capita does not recognize the costs of depleting natural resources and damaging the environment. The concept of natural resource accounting, although still being developed, strives to measure and allow for these costs.