Does Per Capita GDP Mean Anything?

There are various ways to measure 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. The statistic is used as a proxy for development, without taking into consideration the relative concentration of wealth.

The obvious example is with Equatorial Guinea, a tiny country of 600,000 people in Sub-Saharan Africa. The country has a GDP of six billion dollars, for a GDP per capita of around ten thousand dollars. Yet, 80% of the population lives on less than two dollars a day. Equatorial Guinea is still classified as one of the forty eight 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 the latest UN conference on LDC development, Equatorial Guinea, along with its neighbor Angola, is eligible for graduation – hooray!).  

Teodoro Obiang Nguema Mbasogo, President of Equitorial Guinea since 1979The majority of the country’s revenues come from raw materials, namely oil. Like many of its fellow oil-producing nations in SSA, Equatorial Guinea is controlled by a dictatorial regime: kleptocrat Brigadier General and his free-wheeling children. Farmer, businessman, cop, marine during Vietnam, and runner-up for Alabama Ag Commissioner (so listen up!) Dale Peterson would refer to them as “thugs and criminals". Foreign Policy's Ken Silverstein recently penned 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:

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.

But this is not a 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. Unsurprisingly, Equatorial Guinea has one of the highest GINI Coefficients in the world. In fact, many economies dominated by exploitation of natural resources (typically oil), particularly in SSA, have high GINI coefficients.  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 particular country.