Can Per Capita Income Measures Economic Output Performance and Rising Standard of Living?
One of the most popular indexs till day of the month that is used to estimate economic public presentation is the Gross Domestic Product ( GDP ) and Gross National Product ( GNP ) . GDP can be expressed in assorted signifiers and one of them is GDP per capita. The origin of the GDP per capita construct is based on the apprehension that the gross value of economic activity within a state will exercise some grade of relationship with the size of population life in the state. ( Morse, 2004, p.34 ) Harmonizing to Beyond Economic Growth ( n.d. ) , GDP per capita or per capita income is an index that will picture “ the approximative sum of goods and services that each individual in a state would be able to purchase in a twelvemonth if incomes were divided every bit ” .
In our sentiment, we agree that both economic end product public presentation and lifting criterion of life could be measured by per capita income. However, we feel that this measuring does non offer the most accurate reading of the facets, particularly in footings of criterion of life.
There are several grounds to back up our stance as to why per capita income is suited to mensurate economic end product public presentation and criterion of life. First, as the calculation of economic public presentation or growing is a uninterrupted procedure which requires changeless update, therefore a comparatively simple computation is preferred. Per capita income provides a reasonable attack by simply affecting two variables: the entire income generated by the state and entire population of the corresponding state. Furthermore, the debut of existent per capita income has besides help to dismiss the effects of rising prices from the appraisals, thereby enabling a more true representation of economic public presentation.
As it is known that an addition in per capita income will certainly hold a positive impact on the demand of goods and services in the market, a rush in per capita income will in bend encourage ingestion as people now have greater buying power. The Ledger ( 2003 ) offers the statement that although purchasing more things does non needfully measures felicity, mean existent GDP per capita still helps to bespeak the ‘material criterion of life ‘ . Therefore, this implies that per capita income can function as a basic indicant for the criterion of life of people by deducing about the people ‘s ability to devour more or better goods and services.
Take China for illustration, harmonizing to statistics by The World Bank ( n.d. ) , China ‘s GDP per capita has been steadily mounting from $ 2027 in 2006 to $ 3267 in 2008. In tandem with the rise in per capita income, China ‘s outstanding economic public presentation besides saw them catching Germany as the 3rd largest economic system of the universe. Besides that, it is besides reported that bulk of the Mercedes-Benz S-Class saloon units are sold in China, thereby reflecting a more epicurean life style by Chinese citizens. ( Oh, 2009, p.2 ) Such studies show that per capita income do reflect indirectly on the economic public presentation and criterion of life of a state.
However, despite the widespread use of per capita income in mensurating economic public presentation and life criterions, there are still restrictions of the index which will impact the effectivity of the index in supplying an existent, accurate representation of the 2 variables. In footings of economic end product public presentation, per capita income is less effectual as it does non take into history unpaid and domestic work. Harmonizing to Greig ( 2007, p.33 ) , entire economic activity is understated as deliberate GDP per capita merely focuses on monetized activity. Domestic activities carried out by adult females or voluntary plants which do non include any pecuniary minutess, will be overlooked in the procedure of mensurating a state ‘s economic public presentation.
In add-on, the truth of per capita income is compromised as it does non integrate ‘off the books ‘ economic minutess. ( Greig, 2007, p.33 ) ‘Underground ‘ money from black market activities such as illegal gaming and illicit drug production will finally flux back into mainstream economic system and failure to account for such activities in per capita income will do this index to be inaccurate in stand foring a state ‘s economic public presentation.
For the country of criterion of life, there is the issue of income disparity. As per capita income is calculated by spliting the full state ‘s income generated with the entire population shacking within the state, this will merely bring forth an overview of the state ‘s household income. The image of a broad income spread will non be seeable from the exterior as rich household ‘s income will equilibrate off the utmost low figures offset by the low-income households. In add-on, any outstanding signifier of income favoritism would besides be untraceable through the per capita income figures.
Furthermore, Morse ( 2004, p 58 ) argues that lifting criterion of life does non needfully interpret into higher quality of life. Even Miller and VanHoose ( 2001, p.102 ) claims that ‘real criterion of life can progress without per capita income growing. ‘ This is due to the fact that the computation of GDP per capita does non turn to to the unobserved facets and issues of societal public assistance. Pollution, environmental debasement and resource depletion are some of the environmental issues which will endanger people ‘s wellbeing but they are non later included in the statistical computation for GDP per capita. ( Beyond Economic Growth, n.d. ) Then there are besides other determiners such as happiness degree, entree to instruction and people ‘s wellness which are non illustrated by the index.
In position of the all the points discussed, we have come to the decision that since there is yet to be another better index to replace per capita income, even with a figure of problematic defects, the index still remains as the best measuring for economic end product public presentation and criterion of life for the clip bring. Given that per capita income merely provides a really brief mentality on a state ‘s economic public presentation and criterion of life, more comprehensive indexs such as Genuine Progress Indicator ( GPI ) and Human Development Index ( HDI ) have to be deployed at the same time with the use of per capita income to obtain a more elaborate apprehension of the two facets.