The Robustness of GDP per Capita as a Metric

GDP, the inflation-adjusted market value of all goods and services produced within a country, offers insights into a nation’s performance. However, it reflects only part of wellbeing, as aspects like leisure, social equality, and health aren’t directly captured by GDP figures.

When analyzing a country’s economic performance, GDP per capita provides a more nuanced view than raw GDP, by accounting for population changes caused by factors like migration and fertility rates.

While GDP per capita’s growth isn’t the sole determinant of wellbeing, it strongly correlates with improvements in living standards, education, and health—many of which intersect with human rights. Economic growth often provides the financial means for broader social progress, as noted by Amartya Sen: its impact depends on how increased income is utilized.

HDI (Human Development Index) (“calculated by UNDP from indicators for health, education and living standard”) correlates strongly with GDP per capita.
In the words of Hans Rosling, “The reason seems to be that nations today are surprisingly capable in converting the available national income (measured as GDP/capita) into a longer lifespan for the people (measured as Life expectancy at birth) and into access to education (measured by mean of years of schooling for adults aged 25 years and expected years of schooling for children of school entering age). But the reason may also be that nations today are very good at converting improved health and education into economic growth. Most probably the causality goes in both directions.“

Below, you’ll find various correlations between GDP and other factors. Keep in mind Rosling’s correlation-causation caveat: GDP may drive these outcomes, but causality could also flow the other way, or both could share a common cause.

Low levels of GDP and high levels of corruption are correlated

Low levels of GDP correlatrs with high levels of corruption (as measured by the Corruption Perception Index, or CPI, of Transparency.org):

Poverty reduction and GDP per capita growth go hand in hand

Countries with lots of natural resources tend to do worse than countries with less resource wealth

This holds true both in terms of economic growth and in political, social and human rights terms.

Countries rich in natural resources like diamonds, oil, and other valuable minerals often face challenges such as poverty, poor governance, violence, and severe human rights abuses.

These charts illustrate the correlation between resource exports as a percentage of GDP and GDP growth across various countries:

GDP per capita is correlated with economic freedom

Economic freedom, as defined by the Fraser Institute, encompasses the ability to make voluntary transactions, personal economic choices, freedom to compete, and the security of private property. The institute evaluates how well countries’ policies and institutions support economic freedom using an index based on: size of government, legal structure and property rights security, access to sound money, freedom to trade internationally, regulation of credit, labor, and business.
The institute finds that economic freedom has significantly increased in recent decades and correlates strongly with income levels.

The same correlation holds true when using the Heritage Index.
Caveat: this index is more controversial, as economic freedom doesn’t necessarily equate to “conservative” or “small government”; “good” governance can be just as crucial for fostering economic freedom.

The correlation holds true even when using the World Bank’s Ease of Doing Business Index:

Higher GDP per capita correlates with lower infant mortality rate

Higher GDP per capita means having more resources to invest in heathcare and sanitation.

This correlation, though, has some some outliers:

Higher GDP per capita correlates with higher life expectancy

GDP per capita correlates with more education

Causation likely runs both ways: higher GDP per capita leads to better education through increased investment, while better education drives GDP growth by enhancing human capital. Notably, the third graph uses education data from 1900, highlighting the enduring link between education and GDP over time. Better-educated individuals tend to have better-educated children, creating a chain of educational benefits.

GDP per capita has a U-shaped correlation with quality of the environment

Environmental quality tends to decline in the early stages of economic growth but begins to improve around a per capita GDP of $5,000, with significant reductions in environmental damage often observed from $8,000 onward. See Free Trade and the Climb Out of Poverty by Steven Horwitz.

GDP per capita correlates with subjective well-being

From a paper by Betsey Stevenson and Justin Wolfers: “We establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is similar to the relationship between subject well-being and income observed within countries. Those enjoying materially better circumstances also enjoy greater subjective well-being and ongoing rises in living standards have delivered higher subjective well-being.“

Higher GDP growth correlates with lower unemployment

But the level of GDP show a weak correlation. This is because poorer countries don’t necessarily have higher unemployment rates. Their poverty often stems from many citizens working part-time or being self-employed, earning very little in either case.

GDP per capita correlates with rule of law

GDP has a weak to moderate correlation with democracy

Cross-country analysis reveals a weak correlation between democracy and economic growth, largely because some authoritarian regimes, most notably China, have achieved strong growth. However, these cases are not representative, as many authoritarian countries exhibit weak growth. Additionally, strong growth figures can be easier to achieve when starting from a low baseline, as was the case for China decades ago. In such instances, the presence or absence of democracy has little impact on growth.

The correlation between democracy and GDP becomes stronger when considering GDP levels rather than growth. For example, in a sample of countries including Austria, Belgium, Chile, Denmark, France, Japan, the Netherlands, Norway, Portugal, Spain, Sweden, Turkey, the UK, and the US, richer nations tend to either be or become democracies, with the exception of most wealthy Muslim countries.

The graph above, which plots income levels in 1971 against democracy scores in subsequent decades, indicates that causation flows from income to democracy. A high GDP level predicts the development or persistence of democratic systems.

This does not rule out the possibility that causation also runs in the opposite direction—that democracy fosters income growth. It’s reasonable to assume that democratic traits such as transparency, the rule of law, and accountability contribute positively to economic growth.

Perhaps more intriguing is the analysis within individual countries. This paper explores the impact of democratic transitions on economic growth. Given that both democracy and poverty alleviation are tied to human rights, and poverty often correlates with insufficient economic growth (as noted earlier), it’s encouraging that countries transitioning to democracy tend to achieve higher average growth afterward.

The graph below, from the study, illustrates the trajectory of real per capita GDP growth in the years surrounding a democratic transition (marked as year T) compared to global growth rates. The purple dashed line represents average growth. While the transition itself may come with economic costs, the longer-term benefits of democracy are evident.

GDP growth is correlated with more equal land distribution

GDP per capita is correlated with charity

GDP per capita is correlated with Individualism

Individualism as one of the cultural dimensions defined by the Hofstede Index.

GDP per capita is correlated with equality

But, interestingly, when we look at inequality vs. economic growth, the correlation is stronger for developing countries:

But, in general, long consistent spells of economic growth are correlated with low levels of income inequality. From an IMF publication by Berg and Ostry:

“We discovered that when growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth.
[…]
A systematic look at this experience suggests that igniting growth is much less difficult than sustaining it (Hausmann, Pritchett, and Rodrik, 2005). Even the poorest of countries have managed to get growth going for several years, only to see it peter out. Where growth laggards differ from their more successful peers is in the degree to which they have been able to sustain growth for long periods of time.
[…]
It may seem counterintuitive that inequality is strongly associated with less sustained growth. After all, some inequality is essential to the effective functioning of a market economy and the incentives needed for investment and growth (Chaudhuri and Ravallion, 2007). But too much inequality might be destructive to growth. Beyond the risk that inequality may amplify the potential for financial crisis, it may also bring political instability, which can discourage investment. Inequality may make it harder for governments to make difficult but necessary choices in the face of shocks, such as raising taxes or cutting public spending to avoid a debt crisis. Or inequality may reflect poor people’s lack of access to financial services, which gives them fewer opportunities to invest in education and entrepreneurial activity.
Against this background, the question is whether a systematic look at the data supports the notion that societies with more equal income distributions have more durable growth.
[…]
Somewhat surprisingly, income inequality stood out for the strength and robustness of its relationship with the duration of growth spells: a 10 percentile decrease in inequality (represented by a change in the Gini coefficient from 40 to 37) increases the expected length of a growth spell by 50 percent.“

Growth in GDP per capita is correlated with election outcomes in democracies

The economic growth in the year before the election is a stronger predictor on incumbent governments being re-elected than growth at any other point in time.

Higher GDP per capita is correlated with lower incidence of civil war

GDP per capita is correlated with belief in evolution

…with one notable outlier.

Higher GDP per capita is correlated with lower crime rates

Despite the 2008/2009 recession, crime rates did not increase. In fact, U.S. states that experienced the largest declines in per capita income, such as Nevada, also recorded the most significant decreases in property crime rates:

GDP per capita is correlated with world population

Higher GNI (Gross National Income) and GDP per capita correlate with lower fertility rates

In agricultural societies reliant on family-run farms and manual labor, having many children often serves as insurance against the risk of infant mortality. Wealthier countries, with a more developed economy and lower infant mortality, unsurprisingly tend to have fewer children on average.

However, increased prosperity doesn’t always lead to fewer children. Economic downturns, for example, can also result in a decline in birth rates.

GDP per capita is correlated with personal spending for gifts

Growth in GDP per capita is not correlated with tax rates

Some pro free market people argue high tax rates harm society by discouraging productivity among the most successful individuals and limiting their ability to invest, ultimately imposing an economic cost, and that low taxes for the wealthy benefit everyone—a concept central to trickle-down economics and the Laffer curve.
However, data does not support this narrative.

The graphs clearly show that high marginal tax rates do not hinder economic growth, nor do low rates accelerate it. Additionally, research indicates that moderate increases in marginal rates have no effect on the wealthy’s economic participation.

“The top income tax rate was 91% (beginning at taxable income of $400,000) … [in] the period from 1951 through 1963. Those were the golden years of the U.S. economy, in which the average annual rate of productivity growth was 3.1% (compared with about 1.5% after 1981). Of course, the growth might have been even faster had the marginal tax rates been lower, but the coincidence of high rates and high productivity raises challenging questions for those who believe that high marginal tax rates carry an unacceptable cost.“

But it’s also true that marginal tax rates are a crude measure of tax burden, and differ from effective tax rates. The marginal tax rate applies only to the last dollar of taxable income, while the effective tax rate reflects the average rate across all income, factoring in deductions, credits, and lower rates for lower income brackets.

However, even when examining effective tax rates for the wealthy in the U.S., these have steadily declined over decades, showing little to no positive impact on overall economic performance.

If lowering tax rates doesn’t boost economic performance, raising them also doesn’t seem to harm it. Wealthy individuals (and some productive ones, though the groups don’t entirely overlap) tend to respond to tax changes through avoidance rather than by altering labor, productivity, or investment.

This challenges the narrative that tax cuts drive GDP and employment growth, as shown by comparing the economic outcomes of Clinton’s tax increases and Bush’s tax cuts in the US.

The claim that high taxes harm economic efficiency, often leveled at European-style welfare states, lacks evidence. Data from the US and other affluent nations show no clear link between high taxes and reduced growth (though correlation doesn’t prove causation, nor does it rule out benefits from lower taxes).
Plotting US economic growth rates vs. effective tax rates for the wealthy produces the following results:

Higher tax rates may even correlate with greater growth, though effects could take years to materialize. The following graphs account for this delay and show that internationally, higher tax rates don’t correlate with lower growth.