Why some countries are wealthier than others? 2/6
Second post: Variables to determine the GDP per capita
In this post, we analyse variables to explain GDP per capita in countries. The variables are % employment, balance external commerce and % GDP assigned to taxes.
Variable #1: % employment vs. GDP / capita
The % of employment indicates the percentage of the population actively working, and contributing to the GDP. In countries like Island, Switzerland or Norway, a high % employment (>50%) relates to a higher GDP / capita; while in other countries like New Zealand, South Korea, Japan or Germany, a similar % employment relates to a much lower GDP / capita. In the other extreme, Ireland or Luxembourg combines low % employment (<45%) with very high GDP / capita.
In short, % contribution does not seem to relate directly to the GDP / capita, as it could be logically suggested (correlation 0.30 in 2018).
Variable #2: External commercial balance vs. GDP / capita
The external commercial balance (or the external balance of goods and services) is the exports of goods and services minus the imports of goods and services of a country.
Most of the countries with a high GDP / capita (i.e. Luxembourg, Ireland, Switzerland or Norway) have a positive external commercial balance. There is actually a correlation of 0.57 considering data for 2018. However, other countries (e.g. France, United Kingdom, Canada or US) have a high GDP / capita with a negative external commercial balance.
Therefore, the external balance does not strongly explain the GDP / capita in countries, although it seems to have a positive influence.
Variable #3: % compensation of employees vs. GDP / capita
Basically, there are three big groups for GDP: (1) benefit for company owners or autonomous (assigned to a small population), (2) assigned to employees, in terms of salaries or other compensations (assigned to a bigger population), or (3) taxes for the governments.
A high % compensation of employees goes together with a high GDP / capita for countries like Switzerland, Germany, France, Denmark and Canada, which lead the ranking and are also in the first places looking at GDP / capita. However, other countries like Luxembourg, South Africa, Norway or Ireland do not follow such rule.
Compensation to employees seems not to be a rule that can be applied in general (correlation 0.34 in 2018). Different economy models lead to higher or lower GDP anyway.
Variable #4: % taxes vs. GDP / capita
The last of the variables to explain GDP per capita in countries analysed is the % of taxes. It indicates the percentage of the GDP in terms of taxes. A high percentage of taxes leads to a high influence of the public sector in the country’s economy.
This parameter does not seem to have a direct effect in the GDP / capita (correlation -0.29 in 2018). It describes though different economic models with (a) low direct taxes, like Switzerland, or (b) high direct taxes, like Sweden. It does not explain the total of taxes, as indirect taxes are not considered.
file: wealth of countries 2_6
data source: https://data.oecd.org
