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Per capita income (PCI) or average income measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. It is calculated by dividing the area's total income by its total population.
Per capita income is national income divided by population size. Per capita income is often used to measure a sector's average income and compare the wealth of different populations. Per capita income is often used to measure a country's standard of living. It is usually expressed in terms of a commonly used international currency such as the euro or United States dollar, and is useful because it is widely known, is easily calculable from readily available gross domestic product (GDP) and population estimates, and produces a useful statistic for comparison of wealth between sovereign territories. This helps to ascertain a country's development status. It is one of the three measures for calculating the Human Development Index of a country. Per capita income is also called average income.
Critics often cite the following drawbacks to the use of per capita income:
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market.
Purchasing power parity (PPP) is a measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currencies. In many cases, PPP produces an inflation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of poverty, tariffs, and other transaction costs.
Real gross domestic product is a macroeconomic measure of the value of economic output adjusted for price changes. This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate to get the growth of the real GDP. Different organizations use different types of 'Real GDP' measures, for example, the UNCTAD uses 2005 Constant prices and exchange rates while the FRED uses 2009 constant prices and exchange rates, and recently the World Bank switched from 2005 to 2010 constant prices and exchange rates.
Lists of countries by GDP per capita list the countries in the world by their gross domestic product (GDP) per capita. The lists may be based on nominal or purchasing power parity GDP. Gross national income (GNI) per capita accounts for inflows and outflows of foreign capital. Income inequality metrics measure the distribution of income between rich and poor.
The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents. Comparing GNI to GDP shows the degree to which a nation's GDP represents domestic or international activity. GNI has gradually replaced GNP in international statistics. While being conceptually identical, it is calculated differently. GNI is the basis of calculation of the largest part of contributions to the budget of the European Union. In February 2017, Ireland's GDP became so distorted from the base erosion and profit shifting ("BEPS") tax planning tools of U.S. multinationals, that the Central Bank of Ireland replaced Irish GDP with a new metric, Irish Modified GNI*. In 2017, Irish GDP was 162% of Irish Modified GNI*.
This is a comparison between U.S. states and sovereign states' Nominal Gross Domestic Product based on International Monetary Fund and Bureau of Economic Analysis data. Many of the states of the United States have large gross domestic product which would rank highly on a list of countries world GDP.
This article provides an overview of per capita income in India.