GNP per capita is much lower in low- and middle-income countries than in high-income countries. Low- and middle-income countries produce about 20% of the world’s goods and services, but have more than 80% of the world’s population. Although the GNP of low- and middle-income countries grew between 1980 and 1995, this growth was often counteracted by rapid population growth. The GNP per capita growth rate has been negative in most low- and middle-income countries between 1980 and 1995, meaning that the average annual income decreased per person from one year to the next. Despite large differences in the GNP per capita of high-, middle-, and low-income countries, the trend across all countries is for the richest 20% of the population to earn incomes that are many times higher than the poorest 20%. By itself, GNP per capita cannot measure people’s well-being or a country’s success in development. It does not show what is being produced, whether all people share equally in the income of a country, or whether a country has depleted or degraded its natural resources to achieve economic growth.

Exploring the Text

1. Read the definition of GNP per capita and answer the following questions:

1. What does this indicator measure?

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2. Why is knowing GNP per capita helpful in studying development?

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2. Read the definitions of low-income, middle-income, and high-income countries and answer the following questions:

1. What was the highest GNP per capita a country could have in 1995 to be included among the low-income countries?

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2. What would you expect the general living conditions to be like in a low-income country?

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3. What was the range of GNP per capita for middle-income countries in 1995?

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4. What would you expect the general living conditions to be like in a middle-income country?

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5. What was the range of GNP per capita for high-income countries in 1995?

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6. What would you expect the general living conditions to be like in a high-income country?

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3. The items listed below would be included in calculating a country’s GNP. Which items are goods? Which are services?

• food
• housing
• teachers’ salaries
• home computers
• getting a haircut at the hairdressers

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4. Answer each of the following questions briefly, referring back to the text if necessary.

1. Name three factors that influence economic growth.

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2. How can population growth rate affect the GNP per capita growth rate?

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3. Does GNP per capita give a complete picture of the standard of living of all people in a country? Why or why not?

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5. Calculate GNP per capita for countries A and B using this formula: GNP ¸ Population = GNP per capita

Based on your answers, identify each country as low income, middle income, or high income.

6. Use the population information below to complete the question that follows.

How many times greater is the average GNP per capita of high-income countries than that of low-income countries?

7. Read the definition of growth rates, then calculate the annual GNP per capita growth rates for countries A and B using the following formula:

Note: Average annual growth rates of GNP per capita for a period of years provide a better picture than rates for a single year. Calculating any growth rate for a period longer than a year requires more complicated mathematical formulas than the one used to calculate an annual rate.

8. Purchasing power parity (PPP) is used to compare how much a dollar can buy in different countries. If GNP per capita goes up after being adjusted for PPP, one can buy more goods and services than the GNP per capita figure would suggest. If it goes down after adjustment, one can buy less than the figure would suggest. Look at the following table and answer the questions below.

1. In which country would you be able to purchase more with a dollar?

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2. In which country is the average person likely to have the better standard of living?

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3. Based on these data, in which country would you prefer to live? Explain your answer.

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9. Natural resource accounting tries to measure and allow for the costs of depleting natural resources and degrading the environment that can be part of economic growth. Listed below are some products that would add value to a country’s GNP. For each product, list some potential environmental and resource costs that might not be recognized in GNP, but which would be included in natural resource accounting.