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The gross domestic product (GDP) per capita is one standard that can be used to measure and compare economic productivity. It is based on the total value of the goods and services produced in a particular country, divided by the number of people in that country. Several different technical methods can be used to compute this value. GDP per capita is a useful statistic in measuring economic activity, but it does not include every form of economic activity and does not, on its own, present a complete picture of the economic health of a nation.
Economists use several different methods to compute the GDP per capita of a given country, but generally begin by determining the GDP portion of this figure. The total value of all goods and services produced may be added together. Alternatively, the total income earned by all economic agents may be computed, or the total spending of all actors may be determined. These totals give somewhat different figures, but all provide a roughly similar picture of the economic activity in a nation. All of these values are shaped by geography rather than ownership, and economic activity taking place within a particular geographic area is attributed to that area’s economy, regardless of the nationality of the economic agents involved.
Once some measure of raw GDP has been determined, it is then divided by the number of residents to obtain the GDP per capita. Typically, all residents of a nation are considered as inhabitants for purposes of this calculation, regardless of citizenship status. In the case of some small countries, such as Luxemburg, many of the people who work in the country actually live outside of it and contribute the value of their work to its GDP while not being counted as residents of the nation for purposes of computing GDP per capita.
GDP per capita is often used to compare the relative wealth of nations, but it is not a perfect tool for this purpose. Only market activity that takes place in the legitimate marketplace is captured by this measurement. Black market activity is commonplace, and is not measured. Economic activity that is not conducted using the marketplace, such as domestic production or barter transactions, is also not part of this calculation.
Another serious problem with the use of GDP per capita when comparing countries stems from the fact that certain key goods and services are not part of the marketplace in all nations. Health care and education are handled very differently in Europe and the United States, for instance, and a real comparison of the wealth between these two regions must account for this difference. Other measurements attempt to chart the typical purchasing power of individuals in each society or to compute the actual value, rather than the nominal market value, of all goods and services consumed.