Data 1 – GDP
Charts and maps that help demystify GDP. Each of the visualisations below are interactive – hover over them to reveal more detail, and look out for drop down boxes that let you dig deeper.
Why should we care about GDP?
If you want to live a long and happy life, and would like to be in a country where child mortality is rare, then you should care about GDP. Hover over the bubbles in the charts below to reveal the countries.
Can money bring you happiness? Not necessarily, but richer countries tend to have happier populations.
Higher GDP is associated with lower infant mortality, contributing to the relationship with life expectancy shown in the first chart. This relationship appears much stronger among richer countries, but is less consistent among poorer countries. For example, a child born in Rwanda is twice as likely as a child in Lesotho to reach their first birthday, despite Rwanda being marginally poorer.
Using the slider to explore the last 20 years reveals some impressive success stories: countries such as Nigeria, India, and China have seen large increases in GDP per capita and declines in maternal mortality. The US stands out as one of the few countries to see a worsening of maternal mortality.
Putting GDP on a map
OK, so we can all agree that GDP matters. But who has lots of GDP and who has very little?
The first map covers the globe. That country in the middle of Africa, with the 3rd lowest global GDP is the Congo (Democratic Republic) and is home to 96 million people. We will discuss why its GDP is so low in the next chapter of the course. Burundi, tucked to the East of the Congo, a GDP per person (aka ‘per capita’) of just $775, almost 80 times less than Norway, even after accounting for differences in the cost of living. You can hover your mouse over countries to find out more.
US states are up next. They show that there are large differences within countries, as well as between them. GDP per person is over $100,000 in New York, more than double that in Mississippi, where it is under $48,000.
Flavors of GDP and the way it is measured.
Different presentations of one subject can tell different stories. If we look at nominal GDP–the monetary value of economic output–the rising line is due to both a bigger economy (in volume terms) as well as higher prices. ‘Real’ or ‘volume’ measures strip away the inflation effect. If we use a logarithmic scale then a straight line implies a constant rate of GDP growth, things look much steadier, and inflations in a way, become clearer, as deviations from the underlying path. Plotting annual percentage growth shows even a slow-down in growth rates from the 80s onwards. The right perspective depends on the question you are seeking to answer, something we discuss in class.
Statistical agencies have three main approaches to estimate GDP: the expenditure method, income method and production method. Here the first two are presented. The expenditure approach, shown in the left donut, estimates GDP by adding up all the spending on final goods and services. The income approach, shown in the right donut, involves summing all households’ and firms incomes. In theory, they should all yield the same result but in reality they rarely do.
Does consumption make the world go round? Kind of. When thinking about macroeconomics remember consumption accounts for over 60% of US GDP, compared to just 18% for government spending and 17% for investment. This means that the state of US (and UK, German, Chinese …) households is vital in macroeconomics. Did you know that wages contribute more to US GDP than profits?
The third approach looks at GDP by production, or value-added per industry. This shows finance and professional services to be by far the US’ largest sectors, whilst agriculture makes up just one-seventeenth of the value added. This would look radically different one hundred years ago.
Class debate: Should illegal activity be part of GDP?
Milton Friedman famously supported the legalisation of most drugs and in a 1968 address, Robert F. Kennedy lamented that GDP doesn’t account for our “courage, wisdom or learning”, whilst including the destruction of our environment and the sale of weapons. But what about heroin, cocaine, marijuana and methamphetamines? Researchers at RAND estimated they could account for nearly $150 billion of US GDP.
Class debate: Can we value free goods?
Another problem from those trying to calculate GDP is the rise of free goods. How should we put a value on free-to-use social media apps, for example? Some economists favor tackling this problem using choice experiments. Economics 4 Everyone students took part in such an experiment inspired by an paper with the following result, which we discuss in class.
