WSJ_Mirror, Mirror on the Wall: Who’s the Richest of Them All? (November 21)

21.11.2007

Depends on how you count it, says the Organization for Economic Development and Cooperation, the multilateral organization based in Paris.

Real GDP per head as percentage of OECD average

Source: OECD

Taking into account differences in price levels among countries, a calculation known as purchasing power parity, a new tally by the OECD and other bean-counting agencies puts Luxembourg (246% of the OECD average), oil-rich Norway (164% of the average), the U.S. (144%) and Ireland (131%) at the top of the ranking of gross domestic product per person in 2005.

GDP includes household spending, business investment, government spending and net exports. Look at household spending per capita and the rankings change a bit: Luxembourg first at 163% of the OECD average, then the U.S. (152%), Iceland (128%) and Norway (117%). Britain’s GDP per head is about 7% above the OECD average but its actual individual consumption is 20% above the average. The situation is the opposite in the Netherlands and Australia where the relative ranking of GDP per head is higher than for consumption.

The new PPP figures compare economic and consumer activity in 30 OECD members and 25 other countries, including Russia and the Balkan states. They show, among other things, that since 2002, Mexico’s GDP per person rose from 37% of the OECD average to 39% in 2005. Italy’s GDP per head fell from a level 5% above the OECD average to 4% below. Switzerland’s slipped from 30% to 20% above the OECD average over the same period. Meanwhile, the rising value of Norway’s oil exports helped its GDP per head jump to 65% above the OECD average in 2005 from 45% in 2002..

The latest PPP calculations also show that the share of GDP represented by household consumption of goods and services can vary considerably from country to country. Britain’s GDP per head is about 7% above the OECD average but “actual individual consumption” (AIC) is 20% above the average. “This reflects a volume of investment per capita that is significantly below OECD average,” The OECD said. The situation is the opposite in the Netherlands and Australia.

PPP calculations are an alternative to relying on current exchange rates to compare countries, and the two techniques can give very different pictures. Based on exchange rates, for instance, Denmark’s income per person exceeds that of the U.S., but when PPP calculations are made its per capita GDP is lower. “This is because the price level is higher in Denmark than in the U.S. Exchange rates overstate the purchasing power of Danish consumers compared to consumers in the U.S. The PPP conversion corrects for this bias.” – David Wessel