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News : International Last Updated: Dec 19th, 2007 - 13:17:15

OECD releases new GDP and household consumption comparisons based on purchasing power parities; Irish GDP per capita flattered by huge multinational presence
By Finfacts Team
Nov 21, 2007, 13:46

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Source: OECD

New benchmark comparisons based on purchasing power parities (PPPs) show the level of gross domestic product per head has risen closer to the OECD average in a number of countries including Turkey, Mexico, the Slovak Republic, Hungary, Poland and the Czech Republic.

The new PPP figures, based on the benchmark year 2005, enable a comparison of economic and consumer activity in 55 countries, including Russia and the Balkan states. They show for instance that since 2002, the previous benchmark year used for calculating PPPs, Mexico's gross domestic product (GDP) per head rose from a level that was 37% of the OECD average to 39% in 2005.

GDP is made up of household consumption, investment, government expenditure, and net exports. Thus, high levels of GDP per capita do not necessarily mean high levels of household consumption. The set of benchmark results for 2005 therefore includes PPPs for consumption expenditure. However, simple comparisons of household expenditure on goods and services can be misleading if government services such as health or education are provided to different degrees in different countries. The relative levels of consumption shown in the table below control for these differences and include all types of individual consumption. Thus, they measure what households actually consume („actual individual consumption) as opposed to what they purchase.

Italy's GDP per head fell from a level that was 5% above the OECD average to a level 5% below between 2002 and 2005. Switzerland's GDP per head 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 from 45% to 65% above the OECD average.

Ireland is at 31% above the GDP average but the huge impact of the multinational sector flatters the Irish figures.

The OECD says that the picture emerging from the 2005 index of real actual individual consumption is quite distinct from the pattern observed in the economy as a whole (Table 2 - see link below). Several countries feature a significantly higher index of consumption per head than of GDP per head. The United Kingdom is a case in point: its GDP per capita is about 9% above the OECD average whereas its individual consumption per capita is 19% above the OECD average. This reflects a volume of investment per capita that is significantly below OECD average and an expenditure structure with a relatively large share of individual consumption. In the Netherlands or in Australia, the situation is reversed with GDP per capita being relatively higher than consumption per capita.

… and for some countries, international transfers can sizably change per capita income.

Another issue is that GDP per capita makes no allowance for international transfer payments such as profits received from abroad or remittances sent abroad. Gross national income (GNI) takes such flows into account. For some countries, in particular Switzerland, Ireland and Luxembourg, moving from GDP to GNI can markedly change the picture of income flows, putting the GDP per capita figure into perspective.

For example, Swiss GNI per capita is estimated to be at more than 30 percent over the OECD average5, significantly higher than GDP per capita (index of 122), signaling net transfer payments into Switzerland. The opposite holds for two other countries, Ireland and Luxembourg. Measured in terms of GNI per capita, their index relative to the OECD average falls from 131 to around 110 for Ireland, and from 246 to around 200 for Luxembourg, signaling the presence of significant net transfers out of these countries. For most other OECD countries, GNI and GDP rankings are very similar. No separate table with GNI/GDP comparisons is therefore provided by the OECD.

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 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 per head.

See the latest set of figures and explanatory note.

Purchasing power parities (PPPs) are currency conversion rates that take into account price differences between countries. The benchmark results, released every three years, reflect a new set of price quotations for a basket of about 3000 comparable and representative goods and services which make up GDP.

The data was produced in partnership with Eurostat, and the statistical services of Russia and of the Commonwealth of Independent States.

© Copyright 2007 by Finfacts.com

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