Cross-Country Differences in Living Standards

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In 1800, average world GDP per capita was only $250 per year

Even today, there are poor countries in Africa where GDP per capita averages less than $500 per year

U.S., Canada, Japan, and many nations of Western Europe, have average GDP per capita today of over $20,000.

According to Angus Maddison's data, real per capita GDP for various countries and regions in 1998 was

CountryPer Capita GDP
United States$27,000
United Kingdom$19,000
Other Latin America$6,000
former USSR$4,000

Brad DeLong makes the following remarks about GDP in different groups.

  1. In 1950, the gap between the U.S. and Japan and Western Europe was wider than it is today. In 1950, Japan's GDP per capita was only 20 percent of the U.S. level, and only Britain's was over 50 percent of the U.S. level. Now, most of these countries are over 70 percent of the U.S. level.

  2. Communism had an enormous adverse impact on relative GDP. In 1997, Communist North Korea's GDP per capita was only $700, but South Korea's was $13,600. Russia's GDP per capita was only $4400, but Finland's was $20,100. Cuba's per capita GDP was $3100, but Mexico's was $8400.

  3. In spite of convergence within the OECD, overall economic performance has diverged.

    Even if attention is confined to noncommunist-ruled economies, there still has been enormous divergence in relative output-per-worker levels over the past 100 years. Since 1870, the ratio of richest to poorest economies has increased sixfold. In 1870 two-thirds of all countries had GDP per capita levels between 60 and 160 percent of the average. Today the range that includes two-thirds of all countries extends from 35 to 280 percent of the average.
    --DeLong, Macroeconomics, p. 139

This divergence is not necessarily what one might expect. In fact, we would expect the following phenomena to promote convergence.

Different Countries

Communist vs. NonCommunist

Europe and Asia converge with U.S., 1950 - 1990

English-speaking world jumps ahead, 1990 - 2000

India and China surge, 1995 - present

Latin America unstable

Africa and Arab world stuck

What Causes Prosperity?

20 % of differences in labor productivity due to capital, the rest due to "other"