Case study
Differences in living standards
Economic growth has raised living standards around the world. However, many
economists believe we have lost sight of the fact that the standard measure of
economic growth – gross domestic product (GDP) – only measures the size of a
country’s economy and does not reflect a country’s welfare.
Countries like Russia, where 87% of the country’s wealth is in the hands of
10% of the population, struggle to reduce the gap between rich and poor. Russia
only has an income tax.
rate of 13% and state benefits are relatively low. The government has privatised
a number of state
monopolies, affecting prices and profits.
Table 1. Annual GDP per head and life expectancy in selected countries in
2019.
Table 1. Annual GDP per head and life expectancy in selected countries in
2019.
Country
Annual GDP per head
(USD)
Life expectancy
(years)
Jordan
8268
74.4
India
6829
69.4
Finland
41 779
81.7
Ethiopia
1782
66.2
Hong Kong, China (SAR) 60 221
84.7
25 036
72.4
Russia
Finland, a country with high taxes on income and consumption (VAT), has an
average monthly income per head of around 3500 USD. The government
provides an unemployment allowance of 776 USD per month. This does not
cover everyone’s needs in a country with high prices and long, dark and cold
winters. Demand for resources like oil, gas and coal to keep warm increases
during the winter months.
In contrast, in India, where the weather is much hotter and tax rates are lower,
the average monthly income per head is almost the same as Finland’s
unemployment allowance.
Source: Adapted from GDP Is not a measure of human well-being, Amit
Kapoor and Bibek Debroy, Harvard Business Review.
Questions :
1.
Using information from the case study, identify and explain two reasons
why someone from India may enjoy a higher living standard than someone from
Finland with the same income. [4 marks]
2.
Using Table 1, analyse the relationship between annual GDP per head
and life expectancy. [6 marks]