Different ways to measure a country's income
Apart from GDP there are also other indicators,
which are more or less similar and are used to measure generated
income.
GNP (Gross National
Product): measures what is produced by a country's nationals,
they can either reside in the country in question or live in
a foreign country.
The difference between GNP and GDP is the following:
A product that is developped by
a non Spanish resident (for example, an English company that
operates in Spain) is included in the GDP not the GNP.
A product that is developed by
a Spanish company abroad (for example, a Spanish company that
operates in Portugal) is included in the GNP but not in the
GDP.
NDP (Net Domestic Product):
is the same as GDP but you deduct the loss of value of fixed
assets (infrastructure, machinery, instalations, etc) during
the year.
GDP includes all investments. Part
of the investment might go towards replacing (repairing) the
dammage products. This part is deduced when the GDP is calculated
(it is not considered an additional generated income, as it
simply compensates the suffered loss of fixed assets.
Lets look at an example: if an
economy one year generates a GDP of 2000 euros but the machinery,
instalations, etc depreciate 200 euros, the GDP for that year
will be 1800 euros.
NNP (Net National Product):
is the same as NDP but you have to deduct from it, as in the
previous example, the loss of value of fixed assets.
Income per capita
In order to measure the standard of living of
a country, the GDP can be used as a first approximation (a country
that has a higher GDP will have a high standard of living).
However, GDP is not enough:
Which country has a higher level
of wellbeing - China which has a GDP of 500.000 million euros
and a population of more than 1000 million inhabitants or Monaco
with a GDP of 5000 million euros and a population of 30.000
inhabitants?
Therefore, to measure a country's standard of
living, it is essential to consider the income available (1) and
the population:
Income per capita =
income available / population
(1) The income available
is what a country's inhabitants have readily available. The GDP
can be taken in approximation, but there are certain differences
between both concepts:
There are profits that remain in
the companies which are not shared out amongst share holders
(they form part of the GDP but it is not available income);
they have to pay taxes on the profits (same case); families
can receive transfers from the state as pensions, incentives,
subsidaries, etc. (they integrate the available income, but
they are not included in the GDP as they are simply income transfers,
and they do not respond to any economic transaction).
In the previous example, the income
per capita in China is 5000 euros and Monaco's is 160.000 euros,
therefore it is clear that the standard of living in Monaco
is notably higher than the standard of living in China.
