As we have discussed in an another entry, Gross Domestic Product is the name economists give to the aggregated market value of all the final goods and services a country produces within its borders within a calendar year. Economists also differentiate between nominal and real GDP. While nominal GDP presents the aggregate monetary value of all the final goods and services produced in a country in a given year using the current prices of those commodities in that year, real GDP is calculated by using the prices of an index year (in this case, 2010) and generally used to compare the performance of an economy across different years (all indexed to the same year).
In this entry, we will focus on per capita Gross Domestic Product because in tracking the economic growth performance of an economy, we would like to take into account the changes in the size of its population. An economy’s GDP may be growing rapidly, but if the population of that economy is also growing at a rapid rate, we may be mislead in assessing the growth performance of that economy. For this reason, economists calculate per capita GDP by dividing the GDP to the population number. Needless to say, GDP per capita is an average value and given the actual distribution of income in a country it may say very little about the standard of living of the majority of people live in that country.
In Tables 1 and 2, we have presented the series in terms of US dollars. We did so because we wanted to recall a recent debate that took place between Mehmet Şimşek, the Minister of Finance of the Republic of Turkey, and Professor Dani Rodrik of Harvard University. During that debate, referring to the change in nominal GDP calculated in terms of US dollars, Şimşek argued that from 2002 to 2012 the economy of Turkey has grown 3.5 times. In response to this, Rodrik reminded that, while it may be plausible to use nominal GDP in US dollars to make cross-country comparisons at any given year, it is always necessary to take into account real GDP values (whether calculated in US dollars or Turkish liras) when tracking the performance of an economy over time. Accordingly, he argued that from 2002 to 2012 the growth rates of the real GDP and the per capita real GDP (at the time of the debate, indexed to 2005 US dollars) are 63% and 45%, respectively.
In Table 1, you can track and compare the nominal and the real (in 2010 prices) series for per capita GDP. While the nominal series grows rather rapidly, the real series displays a slower increase.
Table 2 contrasts the nominal and the real (again in 2010 prices) series for GDP for the same time period. Similar to Table 1, the real series grows much slower than the nominal one. Nevertheless, it is possible to observe the effects of the 2008 crash and the subsequent global crisis on both series.
Sources:
GDP dataset is downloaded from the OECD website, “Gross domestic product (GDP)” link.
Measure: “US $, current prices, constant PPPs, OECD base year, millions”, “US $, constant prices, constant PPPs, OECD base year, millions”, “Per head, US $, current prices, current PPPs” and “Per head, US $, constant prices, constant PPPs, OECD base year”
Image: Nalan Yırtmaç
