Why GDP per capita is or is not a good measure of living standards

Aayat Hafezjee 


Is GDP per capita a misleading guide? 

Economists and politicians often treat GDP per capita as a national wellbeing thermometer. On the surface, this makes sense: divide a country’s total output by its population to get an average income. But this figure can be dangerously misleading... 

What is GDP per Capita and Why Do We Use It? 

The GDP per capita formula is:  

A black text on a white background AI-generated content may be incorrect., Picture 

We use it to compare countries’ income levels, track national growth over time, and categorise countries by income (e.g., low- vs middle-income).  

For example, Nigeria’s nominal GDP in 2023 was about $364 billion. With a population of over 220 million, its GDP per capita was roughly $1,596.6 (World Bank, 2024), placing it in the lower-middle-income bracket.  

But does this mean most Nigerians live comfortably? As we will see, the answer is no. 


Why GDP per Capita is Not Enough?  

Income Inequality 

GDP per capita is an average, not a median. This means the high incomes of the wealthy can skew the number, giving a false sense of prosperity. In Nigeria, the top 10% of earners take home over 40% of national income (World Inequality Database, 2023). The bottom 50% earn less than 15%. Nigeria’s Gini coefficient of 35.1 reveals substantial income inequality (World Bank, 2024). So, while the ‘average’ income is $2,162, most people earn far less. 

 

Poverty and the Informal Economy 

Despite GDP per capita, over 60% of Nigerians live on less than $2.15/day (World Bank, 2024), and 57% work in the informal sector without secure jobs, contracts, or pensions (ILO, 2022). GDP per capita excludes informal earnings and job insecurity. 

 

Public Services and Wellbeing 

High living standards depend on more than income; they require essential services like education, healthcare, housing, and electricity areas where Nigeria faces major challenges. Life expectancy is just 53 years, far below the global average of 72 (WHO, 2023). Education access is critical, with 10.5 million Nigerian children out of school (UNESCO, 2023). Additionally, 90 million lack reliable electricity (IEA, 2023). These factors reveal key aspects of wellbeing that GDP per capita alone cannot capture. 

Output image, Picture 

Figure 1 Lorenz Curve: Inequality Hidden in GDP per Capita 

The x-axis shows the cumulative population from poorest (0%) to richest (100%). The y-axis shows the cumulative income share. The diagonal Line of Equality represents perfect equality—e.g., 20% of people hold 20% of income, 50% hold 50%, etc. Nigeria’s Lorenz Curve lies far below this line, indicating income is concentrated among the rich. The further the curve from the diagonal, the greater the inequality—and the less GDP per capita reflects well-being. 

Conclusion

This blog shows that GDP per capita is a blunt measure of well-being. It overlooks income distribution, informal work, public service access, and quality of life. Economic progress on paper often masks deep inequalities and suffering. Policymakers must look beyond averages, examining who earns what, who benefits from growth, and who is left behind. 

References:  

ILO (2022) Women and Men in the Informal Economy: A Statistical Picture. International Labour Organization. 

IEA (2023) Africa Energy Outlook 2023. International Energy Agency. Available at: https://www.iea.org/regions/africa 

 

UNESCO (2023) Global Education Monitoring Report 2023. Available at: https://www.unesco.org/gem-report 

World Inequality Database (2023) Income Inequality in Nigeria. Available at: https://wid.world 


About the author

Aayat Hafezjee studies Environmental Sciences and Business Management, with a strong interest in Economics, originally sparked by Richard Thalers, ‘Misbehaving’. She’s interned widely, including at BNP Paribas in Finance, and has spent nearly 2 years employed as a Business Operations Specialist alongside her studies. She’s very active in the Economics field and serves as the Economics Blog Ambassador at Queen Mary University of London. Feel free to email Aayat at: a.hafezjee@hss24.qmul.ac.uk.

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