The dataset also includes estimates of GDP per capita for individual countries — some of which extend even further back in history, as shown in the second chart. What we learn from these charts is that on average the people of the past were many times poorer than we are today. For all the hundreds, and really thousands, of years before , the average GDP per capita was even lower. Prosperity is a very recent achievement that distinguishes the last 10 or 20 generations from all of their ancestors.
If we compare the economic prosperity of every region today with any earlier time we see that every single region is richer than ever before in its history.
Economic growth, however, has not happened equally as fast in all regions. This has created substantial inequalities globally, which we study in more detail in our entry on global income inequality. Economic growth is a very recent phenomenon — we already saw this in the data that we discussed earlier in this entry. It is true that in the pre-growth era some people were very well off — but this was the tiny elite of the tribal leaders, pharaohs, kings and religious leaders.
Whilst global inequalities were lower in a world where sustained economic growth had yet to occur anywhere, economic inequality within pre-modern societies was extremely high and the average person was living in conditions that we would call extreme poverty today. The destitution of the common man only changed with the onset of economic growth.
The time when this change happened in various countries can be seen in these two charts. Economic prosperity was only achieved over the last couple of hundred years. In fact, it was mostly achieved over the second half of the last hundred years. The rise of global average incomes — global GDP per capita — shows that the world economy has moved from a zero-sum game to a positive-sum game. This made it possible that when people in one place became richer, other people in other places could become richer at the same time.
For this I have used recent data from the World Bank for the period from onward and for the historical estimates before I rely on the historical estimates constructed by the economic historian Angus Maddison.
This means that the output per person in one year in the past was less than the output of the average person in three weeks today. It is remarkable how steady economic growth was over this very long period. From to GDP per person in the U. The chart below compares the economic growth at the technological frontier with the growth of countries that are further away from the technological frontier. In this chart the steepness of the growth path corresponds to the growth rate as GDP per capita is plotted on a logarithmic axis.
Economies that are far away from the technological frontier can grow very rapidly. Catch up growth can be much faster than growth at the technological frontier. The average person in the world is 4. But beyond this global average, how did incomes change in countries around the world? Who gained the most, who gained the least? And why should we care about the growth of incomes? These are the questions I answer in this post. The chart below shows the level of GDP per capita for countries around the world between and On the vertical axis you see the level of prosperity in and on the horizontal axis you see it for GDP — Gross Domestic Product — measures the total production of an economy as the monetary value of all goods and services produced during a specific period, mostly one year.
Dividing GDP by the size of the population gives us GDP per capita to measure the prosperity of the average person in a country. Here at Core-Econ you find a more detailed definition. Look at the world average in the middle of the chart. This takes into account that the prices of goods and services have increased over time it is adjusted for inflation; otherwise these comparisons would be meaningless.
Similarly, to allow us to compare prosperity between countries, all incomes are adjusted for differences in the cost of goods between different countries using purchasing power parity conversion factors. As a consequence of these two adjustments incomes are expressed in international-dollars in prices, which means that the incomes are comparable to what you would have been able to buy with US-dollars in the USA in While the global average income grew 4.
Before economic growth the world was exactly this: a zero-sum game in which more people meant less for everyone else, and if one person is better off in a stagnating economy then that means that someone else needs to be worse off I wrote about it here. What economic growth makes possible is that everyone can become better off, even when the number of people that need to be served by the economy increases.
Incomes did not grow everywhere in the world. But today they do — while many economies achieved strong growth some stagnated around their level from These are the countries that remained at the bottom of the chart.
The difference between stagnation or even decline in some places and rapid growth in other places lead to a dramatic increase in inequality in the world. Norwegians are now on average more than fold richer than people in Liberia, Burundi, and the Central African Republic. This failure to grow the economy and to provide the goods and services that they need is one of the largest failures in recent decades. It means that populations in these places are now much worse off than people in the rest of the world — they are less healthy and die sooner, education is poorer, and many suffer from malnutrition.
Economic growth has allowed us to break out of the conditions of the past when everyone was stuck in poor health, hard and monotonous work, and malnutrition. Taiwan is one of the most impressive examples. The Taiwanese are now among the richest people in the world, times richer than they were in It is hard to imagine what this meant for living conditions in the country.
To take just one example. Today the child mortality rate has declined to half a percent 1-in children. Another way to look at it is to start with the richest people in the past — shown furthest to the right in the chart below. Today the average person on the planet is as rich as the the average person in the richest country in And all those countries that have an income higher than the global average today are more prosperous than the US in Iran, Mexico, Bulgaria, … Have a look at that list.
The same is true for health globally. The average life expectancy in the world today is 71 years, just 1 year less than the life expectancy in the very best off places in I wrote about it here. In this post I looked at the population-wide average income. But, the question of how prosperity is shared among the population is an important one and it has been central to my research over the last years:If you are interested in this question, have a look at the short article on Vox.
Brian Nolan has edited two books on the question which were published just recently. What this research shows is that it very much differs between countries and over time who is benefiting from economic growth.
While in the US, for example, most of the income gains went to the richest members of society this is not true of other countries where economic growth was widely shared among all.
The data visualized in these two charts shows that the world is not the zero-sum economy that it was in our long past. Economic growth transformed the world into a positive sum economy where more people can have access to more goods and services at the same time.
It would be wrong to focus on economic growth only. Economic growth has to be achieved at a time when we urgently have to reduce our impact on the environment. This means that it is not only the rate of growth that matters. And many paths for growth point in a direction that does not increase our environmental damage and instead can often reduce the impact better care for the sick and elderly, better educational institutions, alternatives to meat, care for mental health, improved solar technology; all these improvements would mean more growth.
Economic growth is not the only thing that matters, but it does matter. In contrast to many of the other metrics on Our World in Data, economic growth does not matter for its own sake, but because rising prosperity is a means for many ends. It is because a person has more choices as their prosperity grows that economists care so much about growth.
Rising prosperity gives people access to a wide range of things they value: food, healthcare, access to education, entertainment, holidays, free time, and more. The concern with GDP per capita is based on the idea that rising prosperity makes for a richer life.
I find the metric important because it is a measure of means only and thereby respects the freedom of everyone to choose for themselves. It is because of this that is so important to track how incomes have changed around the world. For recent decades several international datasets on GDP are available. It is now covering more than countries and data is available from onwards. The World Bank data in constant international-dollars is available from onwards. Adjusting for the different price levels in different countries is necessary if one wants to compare living standards of people.
The international-dollar — used in the maps above — makes these comparisons possible. But if one is interested in comparing the per capita output of different economies it is useful to consider the output by simply using the exchange rates of the different currencies. The discussion above focussed mostly on output per capita, the map below shows the total output by country. There are two ways to increase output over time: Increase inputs or to increase productivity, the ratio of output to input.
How it is possible to raise productivity can be most clearly seen when one considers a single industry only. Think about the production of books: Before the printing press was invented the only way to copy a book was for a scribe to copy it. Gregory Clark 14 estimates that the scribes who were doing this work back then were able to copy 3, words of plain text per day. This implies that the production of one copy of the Bible meant days 4.
This changed fundamentally when Johannes Gutenberg adopted the technology of the screw-type wine presses of the Rhine Valley where he was from to develop a printing press. The hours of work a printer had to put in was now measured hours rather than months. Estimates are that a worker was able to produce around 2. Over time printing presses were improved and during the Industrial Revolution they were mechanized and productivity of workers increased further.
The Internet stands in this long tradition and as texts can now be seen by millions in an instant the productivity in the business of making texts available is off the charts. The visualization below shows the rising output of the economy by industry. Each time-series is indexed to the year so that the focus here is on the change over time as all changes are relative to that year. The rising output of key industrial and service sectors is shown here.
Urbanization and economic prosperity are strongly correlated as the following visualization shows. There is a clear correlation between poverty and religiosity. In richer countries the share of the population for whom religion is very important is much lower.
The visualization shows the very substantial decline in the labor force participation of men of 65 years and older in the USA since the end of the 19th century. To allow saving and facilitate transactions access to financial services is important. We know that in poorer countries this access is often very limited. The data is very scarce on this pre, but World Bank estimates provide an additional single point for countries.
The challenge is that it is not exactly the same measure as the and data, but instead a composite measure of access to a bank account and financial services. The indicator is constructed as follows: for any country with data on access from a household survey, the surveyed percentage is given.
For other countries, the percentage is constructed as a function of the estimated number and average size of bank accounts as discussed in Honohan These numbers are subject to estimation error. The use of composite measures is, of course, not ideal. However, we think it should still give a fairly reasonable basis of the early s to use as an earlier estimate and the direction of progress trends.
It measures the monetary value — the price — of all goods and services produced in a country. To allow for comparisons between countries and over time, the total economic output of a country is put in relation to the number of citizens in that country.
This is GDP per capita. The change from one year to the next is referred to as economic growth. As everyone who had a beer or a haircut ten years ago will remember the price of goods and services usually increases over time, this is called inflation and is most commonly measured with the consumer price index CPI.
Comparisons of prosperity over time are therefore only meaningful when these price changes are taken into account so that the growth rate does not capture mere changes in prices.
Measures of incomes are only meaningful when they are put in relation to measures of prices that these income receivers face. When incomes are adjusted for prices economists speak of the real value of a good or service. But since comparisons only make sense when one adjusts for price changes, it is usually the case that adjustments for inflation have been made even when it is not explicitly said. It theory these three measures should be equal; they constitute an accounting identity.
Your spending is my income, and my spending is your income. In reality, average incomes and GDP per capita will not be equal. To make meaningful comparisons of prosperity over time it is necessary to adjust for inflation. But how is this actually done? If you then find that the price of bread doubled over a period, but your employer still pays you the same income, then you can only buy half as many breads from your income and your income in terms of bread has halved.
A halving of your income in terms of bread is your income adjusted for the inflation of bread prices. But to measure prices by relying on one product only has the obvious problem that you could end up picking a product that was not representative of the price changes of all the other products and services that consumers want to buy.
While the price of bread may have increased, the prices of the majority of other goods could have decreased. The idea for inflation adjustment for incomes is therefore to instead rely on a commodity bundle of goods and services that are representative of the consumption of the average household.
By relying on a representative commodity bundle instead of bread alone allows you to adjust incomes not only for bread, but for the cost-of-living more broadly.
The basket used is chosen to reflect the expenditure of the typical household, so that changes of this bundle measure the changes to prices the typical consumer faces. What we are interested in is the price change of this bundle of good over time and the history of prices is then expressed in an index called the Consumer Price Index , which is indexed to for a chosen base year.
As consumption differs in different countries, these household consumption baskets vary from country-to-country and over time as new technologies emerge which make new goods and services available and because consumption preferences change.
Only incomes in relation to prices gives us an idea about how the prosperity of a population changes. Incomes on their own or prices on their own cannot give us an idea about changing prosperity. The prices that we see on the price tags in the shop are the nominal prices and since we almost always have some inflation these prices tend to go up.
The inflation adjustment of income is done by expressing income relative to the price of a commodity bundle such as the one described before. Features Questions? Contact us Already a Member? It allows API clients to download millions of rows of historical data, to query our real-time economic calendar, subscribe to updates and receive quotes for currencies, commodities, stocks and bonds. Click here to contact us. Please Paste this Code in your Website.
Iran has a fairy diversified economy. The largest contributor to the GDP is services around 50 percent of total output. Within services, the most important are real estate and specialized and professional services 14 percent of GDP ; trade, restaurants and hotels 12 percent of GDP and public services 10 percent of GDP.
Manufacturing and mining constitute 20 percent of GDP and agriculture 10 percent. Iran Crude Oil Production at Australia Inflation Expectations Remain High. API users can feed a custom application.
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