In order to calculate GDP per capita, one first needs to compute the value of the gross domestic product. This can be performed by three ways; through the expenditure approach, the income approach and the product approach.
The expenditure approach is the most common, which is calculated by referring to the general formula where GDP = C+I+G= Xn where C is consumption, I is the investment, G is government purchases and Xn is net exports (exports – imports).
The product approach is also referred to as Net Value Added which equals the Gross Value of output – Value of Intermediate Consumption. There are certain variations to this approach where GDP is either calculated at factor cost or Producer Price.
The Income approach incorporates the factors of production and gauges how an economy is performing through income of each individual.
However, to make things easier, the GDP value can easily be obtained through the CIA’s World Fact Book. For example the GDP of US in 2011 stood at $15.09 trillion according to the World Bank, where as Pakistan’s GDP was US $233.476.
In order to calculate GDP per capita, you will need to know the population of a country. As of 2011, the US population was 311,591,917, while Pakistan’s overall population figure was 176,745,364. Therefore, the GDP per capita of the two nations is $48, 382 and $2786 respectively.
Notice the difference in the two figures. This is why GDP per capita is a better indicator when gauging the economic prosperity in a region. While US economy may be the efficient in terms of producing goods and services but that is being spread across more people, which is the reason they are not the richest in terms of GDP per capita.
The European countries are the most prosperous in this regard, along with the some of the oil-rich Asian countries. With favourable laws, most business headquarters are based in places like Liechtenstein and Luxembourg.