Analysis by Keith Rankin.
The most common way to represent a country’s prosperity is through Gross Domestic Product (GDP) per capita. While this measure has its limitations – mostly arising from differences in inequality – it remains an important measure of comparative economics.
The $US measure of GDP (blue) tells us the value per person of marketed output priced in the world’s reserve currency. The $International measure (black) – using ‘purchasing power parities’ – tells us what that countries marketed output would buy, on an average per capita basis.
The countries where the $US measure is greater than the $Int measure are countries that travellers would regard as ‘expensive, such as Switzerland and Norway. On the other hand, countries for which the $Int is higher have relatively low domestic prices.
The table excludes four countries with populations below one million: Luxembourg, Macao, Iceland and San Marino. Being very small, these countries tend to have (or have had) specialisations relating to areas of international business and finance which, when divided by their low populations, artificially boost their GDP per capita statistics. The table also excludes some other countries ranked above New Zealand on the international dollar measure: Brunei (which has less than one million people), Saudi Arabia, Bahrain, Taiwan, Oman, Puerto Rico, and South Korea.
There are many points of interest in this chart, not least the dominance of Qatar and other small countries. On the international dollar rankings, the top seven countries are all small countries with specialisations in oil or business/financial services. The United States is 8th on the chart.
For European Union (EU) countries, those in the Euro Area (except Finland) have higher international dollar values whereas non-Euro EU countries have higher $US values. This reflects the substantial deflationary pressures in place in the Euro Area.
Of particular interest is Ireland, which (ignoring little Luxembourg), comes out top of the Euro Area, top of the EU on the purchasing power ($Int) measure, and second top (after Denmark) on the $US measure. This seems hardly credible as a measure of typical living standards in Ireland, a country with the same population as New Zealand, a large emigrant labour force, unemployment (albeit falling) at eight percent, and deflation. As my previous Chart for this Month suggested, Ireland’s national accounts reflect that country’s position as an overt facilitator of trans-national corporate tax avoidance.
By the purchasing power measure of living standards ($Int GDP pc), New Zealand comes in at 28th (33rd if you include the rich little countries included in the IMF statistics – many of the tax haven countries, including those in the British Isles such as Jersey, are not covered by the IMF), well below Australia at 14th. Arguably the most prosperous country in the world 150 years ago, and very much in the top ten 50 years ago, New Zealand hangs in there, with average living standards comparable to Pacific Rim neighbours Japan, Korea and Taiwan.