The World Bank puts countries ahead of people. It’s a harsh thing to say about an institution that does a lot of good work, but it is one of the takeaways from the bank’s 2018 Global Economics Prospects report.
The report puts a heavy emphasis on growth of gross domestic product (GDP)—the value of all the goods and services a country produces in a given year. The first paragraph announces that “Global GDP growth is estimated to have picked up from 2.4 percent in 2016 to 3 percent in 2017.” The second page is a table with GDP growth projections—which generally look very good for 2018.
The fact that GDP growth is the headline number in the World Bank’s report is foolish. A country’s aggregate economic growth is not what matters. What matters is whether the people living in a country are getting wealthier. Reporting that the world’s GDP grew by 3% in 2017 ignores the fact that the world’s population is growing by 1.2% every year.
Instead of reporting that 3% number, the World Bank ought to be reporting that GDP grew by about 1.8% per capita (that is, per person). Unfortunately, per capita statistics are almost an afterthought in the World Bank’s thinking. It is not the only organization making this mistake. Fellow institutions like the IMF and OECD both give top billing to overall GDP growth.
I am far from the first person to bring this issue up (paywall), but it seems the drum still needs banging.
For countries where the population isn’t growing much, the difference between GDP per capita growth and total GDP growth is minimal. But for countries with rapidly growing populations, like those in Africa and South Asia, reporting GDP growth can be highly misleading. In 2016, for example, 24 countries had positive overall GDP growth but negative GDP per capita growth. For example, Afghanistan’s economy grew by 2.2% overall, but declined by 0.5% on a per capita basis.
The following chart shows overall GDP growth versus per capita GDP growth for the nine most populous countries in the world. The growth rates are fairly similar in countries like Russia and Brazil, where population growth is low, but there is a big difference in places like Pakistan and Nigeria.
Emphasizing GDP per capita rather than GDP growth is just a start. An even better step would be for the World Bank to put more focus on median household income rather GDP per capita. Knowing that a country’s GDP per capita is growing does not necessarily tell you that the typical person is doing better—all of that growth might be going to a small group of already wealthy people. Median incomes tell you more about how most people are getting along.
The bank has a better reason for not stressing median incomes: Medians are much harder to calculate than per-person averages. GDP per capita can be gathered from aggregate statistics of consumption and investment. Median household income can only be calculated through expensive household surveys that many countries do not conduct regularly. The US does, and the chart below shows how different the growth in median household income can be from GDP per capita.
To be fair, GDP growth is not a a completely useless statistic. It is important for getting a sense for how important a country is to the global economy and the prospects for trade between nations, among other things. Yet, for the most part, it is not the number we should obsess about.