Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. It is possible that the fewer people in the country have the maximum amount of wealth and there could be huge amount of the gap between the rich and poor of the country. 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. Student videos. However, this tells you nothing about the distribution, potential, or sustainability of the economy. Limitations and drawbacks include the following: One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. 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. |~ », 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. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently. », Why is GDP per capita better than GDP total? 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. technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. Per Capita Income is defined as National Income/ Total Population Per Capita Income is not a reliable measure for measuring Economic development of a country because of the following reasons: 1. For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. This has been a guide to what is Real GDP Per Capita and its definition. When the GDP is adjusted for inflation, it is called nominal GDP. 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. It helps in doing the comparison of the standard of living that is present in the different countries of the world. Registered office: International House, Queens Road, Brighton, BN1 3XE. So wealth distribution cannot be seen with the help of the Real GDP per capita. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. In addition, it is often used to rank countries in order to issue aid payments. It is a Good indicator for showing the provision of the services. GDP and GDP Per Capita. Change in per capita gdp is a pure measure of productivity because it controls for population size. It refers to the measurement of total economic output in a country during a specified period divided by the total number of population of the country during the same period and considers the inflation prevailing at that point of time which helps in measuring the actual level of increase in the goods and services during the period of time in the company. GDP per capita is an average, and thus ignores the distribution of incomes in a given country. Discussions above show that GNP per capita is an inadequate measure of economic development and social welfare. Answer and Explanation: Become a Study.com member to unlock this answer! Per capita GDP tells you, on average how much output each person provides to the economy, and is therefore a measure of economic health. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. 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. (Source: John Sloman, 2006) 9 Advantages of Globalization. From the Blog. GDP per capita is measured when GDP is divided by the number of people in the country. 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. Is it time to end our fixation with GDP and growth? Advantages and Disadvantages of Globalization. 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. 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. 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. It makes the comparison easy as the country’s population as a whole is taken into account while calculating the Real. 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. Comparing cross-country data can indicate human welfare distribution. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. 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. Show more. There are several "disadvantages" if that's what you want to call them. © Copyright Get Revising 2020 all rights reserved. As a result of globalization, we all enjoy many advantages. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. GDP can be expressed in two terms, real GDP and nominal GDP. … Per-capita GDP is a reasonable measure of a country's standard of living. 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. 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. 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). So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the … Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. Real GDP per capita does not take into consideration the details of the earnings of the illegal workers in the country as well as the people who are working voluntarily in the country. Higher per capita GDP <==> on average, people eating better, living in better dwellings, healthier, … One method of calculation is to consider GDP at its purchasing power parity (PPP). », ~| Guess What? Also High GDP per capita might be accompanied by high levels of pollution and exploitation of the workforce, thus causing a decrease in living standards which is not reflected in GDP figures. so let us make an in-depth study on the advantages and disadvantages of globalization. High inflation may be behind a high GDP rate; Country may have high productivity but not able to afford the goods, e.g. 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. Can hide inequalities as it does not show the distribution of wealth. Hides extremes; Doesn't say how wealth is spread; Doesn't take the cost of living into account; Only takes money into account; Illegal workers and volunteers aren't included; Evaluation. China makes a huge number of iPhones but the majority of people living their can’t afford them; Government could adjust figures to gain power; Production process could be immoral, high GDP could be down to trading drugs or guns There are many advantages and disadvantages for GDP per capita. Therefore, GDP may overestimate living standards in a 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… 18th June 2019. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. Please i need some help », Can I please get some hand here? Advantage of China Economic. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. 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. [Year 12 Enrichment Task] 21st May 2020. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. Disadvantages of the Real GDP Per Capita. Not all economists are in agreement with the use of GDP as a main economic measurement tool. 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