There are various ways of measuring the level of a country’s development.  Choosing the right methodology for quantifying economic status is critical for thinking about the problem of poverty effectively.  On a macroeconomic level, the most common indicator is per capita GDP.  But I am not sure if per capita GDP is really a good measuring stick for the relative prosperity of a country.

This thinking stemmed from a conversation I had this afternoon over lunch comparing Ghana, where I used to live, to Kenya, where I now reside.  Ghana is technically middle income status already, based on per capita GDP figures.  My friend, who had also spent time in both countries, raised this point when someone asked about the differences between the two countries.   People bring up this statistic a lot when talking about Ghana, without taking into consideration the relative concentration of wealth (or maybe doing so, but not saying it).

The obvious example is with Equatorial Guinea, a tiny country of 600,000 people in Sub-Saharan Africa.  The country has a GDP of USD $6bn, for a GDP per capita of around $10,000 GDP.   Yet, still 80% of the population lives on less than $2 a day.  It is still classified as one of the 48 LDCs (least developed countries), and is a recipient of donor funding from other governments (though, according to the Istanbul Programme of Action, the product of latest UN conference on LDC development, Equatorial Guinea, along with its neighbor Angola, is eligible for graduation – sweet!).

The majority of the country’s revenues come from raw materials, namely oil.  Like many of its fellow oil-producing nations in SSA, it is controlled by a dictatorial regime of kleptocrat Brig. Gen. Teodoro Obiang Nguema Mbasogo and his free-wheeling children that farmer, businessman, cop, marine during Vietnam, and runner-up for Alabama Ag Commissioner (so listen up!) Dale Peterson would refer to as “thugs and criminals.” Foreign Policy recently had an article on the outrageous spending habits of the dictator’s son.  Warning: if you are an optimist and believe the world is a just and equitable place, this article is not for you.  Here is what it has to say about the country:

A postage stamp of a country with a population of a mere 650,000 souls, Equatorial Guinea would be of little international consequence if it didn’t have one thing: oil, and plenty of it. The country is sub-Saharan Africa’s third-largest producer of oil after Nigeria and Angola, pumping around 346,000 barrels per day, and is both a major supplier to and reliable supporter of the United States. Over the past 15 years, ExxonMobil, Hess Corp., and other American firms have collectively invested several billion dollars in Equatorial Guinea, which exports more of its crude to the U.S. market than any other country.

Energy revenues have flowed into the pockets of the country’s elite, but virtually none has trickled down to the poor majority; since the oil boom began, the country has rocketed to one of the world’s highest per capita incomes — and one of its lowest standards of living. Nearly four-fifths of its people live in abject poverty; child mortality has increased to the point that today some 15 percent of Equatorial Guinea’s children die before reaching age 5, making it one of the deadliest places on the planet to be young.

A bummer, yes.  But this is not an post about Equatorial Guinea (though it could be, since it is such a crazy country, but that will come later).   The example illustrates a larger point about the relevance of per capita GDP.  The statistic belies the tremendous disparity of wealth between the rich and poor.   The relative concentration of money in the hands of a few elites makes a country like Equatorial Guinea a very poor nation with a few incredibly rich people; not a moderately wealthy nation.

There exists a tool to quantify the relative income inequality of the countries of the world.  The Gini Coefficient, as it is called, measures the disparity of wealth among the population of a country.  Equatorial Guinea actually does not have a Gini Coefficient, for whatever reason.  But many economies dominated by exploitation of natural resources (Scandinavia excluded), particularly in SSA, have high Gini coefficients.  Angola, for example, has a Gini coefficient of 58.6, placing it at number four on the UN index, just behind Namibia, Haiti, and Comoros.  Only by looking at this key indicator in conjunction with per capita GDP can one really get a sense for the level of economic development in a country.

Before I left Ghana, I was talking about this subject with a friend from Engineers Without Borders Canada (an organization for which I have much respect).  He, like the rest of the EWB crew, eats, drinks, and sleeps market-driven agriculture development.  We were talking about Equatorial Guinea, and he was saying that it would be super sweet to do development work in the country.  I disagreed purely on a matter of principle.  Yes, two-thirds of the population is desperately poor and cannot catch a break.  But how can you reconcile working to serve the poor in a country where the government so egregiously disregards the masses?  To my mind, it creates a disincentive for the government to provide services if foreigners and donors are providing them instead.  But, that two-thirds will still remain desperately poor (probably in part thanks to Chevron and China), regardless of what happens, and their situation may even get worse if somebody doesn’t do something.  But whose responsibility is it to do something?  It’s an interesting philosophical question.


Josh

"Josh Weinstein is a visionary. I read his blog every day." - Bono

1 thought on “Does Per Capita GDP Matter?”

Manuwoto · May 22, 2011 at 11:29 am

I like your thinking

Leave a Reply

Your email address will not be published. Required fields are marked *


*

Related Posts

Development Economics

Corruption in a Trump Presidency

In December 2009, I moved to Philippines just before the presidential election.  Like most of the former leaders of the Philippines, the outgoing president, Gloria Macapagal Arroyo, was exiting under a cloud of scandal.  The Read more…

Development Economics

Racism in America

I. Introduction In August of 2014, a police officer shot dead Michael Brown, a black teenager from Ferguson, Missouri, blowing the lid off a debate about racism in America. Protesters filled the streets, yelling “Hands Read more…

Development Economics

Why Do Some Countries Have It So Bad?

Open a newspaper today and you’ll be bombarded with a panoply of terrible news. Ebola is ravaging West Africa, with a projected 10,000 new cases per week and the possibility for 1.4 million people infected Read more…