Avoiding Non-Normalized GDP Numbers

22 Dec, 2024

When comparing countries' economic performance, GDP is a common and misleading metric when used non-normalized. I recently encountered some writing comparing countries' GDPs, and it bothered me that raw GDP includes factors irrelevant to assessing economic strength.

In the future, I'll avoid material that doesn't adjust GDP for more meaningful comparisons:

1. GDP per capita: Reflects average economic output per person but ignores cost-of-living differences.
2. PPP adjustment: Normalizes GDP for purchasing power parity to account for cost-of-living variations, offering a clearer measure of living standards.
3. GDP per hour worked: This measure of labor productivity evaluates output relative to hours worked, highlighting efficiency—especially in countries with shorter workweeks achieving similar outputs.

Together, PPP-adjusted GDP per capita and hours worked offers a more accurate picture of economic strength. Beyond these adjustments, I find limited use for raw GDP figures, except perhaps as a political tool in international negotiations.