Tag Archives: dutch disease

Does Per Capita GDP Matter?

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!).

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Natural Gas in Papua New Guinea and Oil in Ghana

This is from the New York Times the other day:

In 2014, ExxonMobil is scheduled to start shipping natural gas through a 450-mile pipeline, then on to Japan, China and other markets in East Asia. But the flood of revenue, which is expected to bring Papua New Guinea $30 billion over three decades and to more than double its gross domestic product, will force a country already beset by state corruption and bedeviled by a complex land tenure system to grapple with the kind of windfall that has paradoxically entrenched other poor, resource-rich nations in deeper poverty.

While the West’s richest companies are used to seeking natural resources in the world’s poorest corners, few places on earth seem as ill prepared as the Southern Highlands to rub shoulders with ExxonMobil. The most impoverished country in one of the world’s poorest regions, it went unexplored by Westerners until the 1930s. Believing that this rugged, mountainous region was uninhabited, the explorers were stunned to find at least one million people living here in one of the world’s most diverse areas, largely in small, distinct communities separated by different cultures, languages and nearly impassable terrain.

More often than not, the discovery or exploitation of natural resources in a country without the resources or good governance to manage the influx of wealth can spell disaster.  I have talked about this concept a few times in Develop Economies, as it pertained to diamonds in Zimbabwe.  This isn’t to say all countries with huge natural resource wealth will mismanage the gains.  Norway, for example, is the third-largest oil exporter in the world, controlling massive reserves in the North Sea.  The country has managed these resources well and, as a result, has a huge public sector, compared to other developed countries, a relatively high standard of living, and a strongly integrated social welfare system for its people.  How resource wealth is managed is most important.

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