Richest and Poorest Countries | Global Finance

There are two standard methods of measuring the wealth of countries and how rich or poor its inhabitants are. The measure most often used is Gross Domestic Product (GDP), which represents the size of a country’s economy. A refinement of this is per-capita GDP, which is a measure of the average welfare and affluence, or poverty, of residents of a country. However, GDP and per-capita GDP are less useful when comparing economies across national boundaries – which one must do to determine the richest or poorest countries in the world – because GDP is expressed in a country’s local currency.

The measure that most economists prefer, therefore, is GDP (PPP) [“GDP based on purchasing power parity”] per capita. GDP (PPP) per capita compares generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of countries, rather than using just exchange rates, which may distort the real differences in income. The indicator measures GDP converted to a common set of prices in a common currency (international dollars, also called Geary-Khamis dollars) so that real quantity comparisons can be made both between countries and over time. The difference between GDP growth and GDP (PPP) per capita is best exemplified by China, which ranked highest for this period in terms of GDP growth, but came in 96th for this period in terms of GDP (PPP) per capita.

GDP is not a perfect measure to describe the well-being and quality of life of populations, and there are other indexes that take into account other variables such as life expectancy, income distribution, literacy, etc. – for example, the UN Human Development Index and the Index of Sustainable Economic Welfare. In fact, GDP is often considered imperfect even to measure overall economic strength. (See the report released in 2009 by a commission chaired by Nobel Prize-winning economists Professor Joseph E. Stiglitz and Professor Amartya Sen, and by Professor Jean-Paul Fitoussi [Download PDF] and “Beyond GDP” from the European Commission. Still, when taken with PPP, it is a useful tool for comparing economies across national boundaries.

Poverty remains extensive throughout the world, particularly in south Asia and Africa. A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults owned 40% of global assets in the year 2000 (their most recent figures), and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth. World Bank Development Indicators reported in 2008 that in 2005 (their most recent figures) 1.4 billion people lived on $1.25 a day or less (US$ PPP); almost 15% of the world’s population, or nearly 1 billion people, lived on $1 a day or less.

“Eradicate extreme poverty and hunger” is the first of the eight Millennium Development Goals (MDGs) adopted in 2001 by the 192 United Nations member states and 23 international organizations. One target is to halve the proportion of the world’s population living on less than $1 a day (PPP values). A 2009 report by the UN Population Fund warned that overall progress has been too slow for most of the MDG targets to be met by the target date of 2015. And major advances in the fight against poverty have begun to slow or even reverse as a result of the global economic crisis.

For a further discussion of Gross Domestic Product Purchasing Power Parity (GDP PPP), click here.

For definitions of other indicators, click here.

For a list of countries in the regions listed in the regional table, click here.

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