Gross Domestic Product (GDP)

“The total market value of all final goods and services produced within given country in a given period of time usually one year.”

Reasons for low and High GDP of a country: High GDP is due to the people in a country being more productive because they are healthier, better educated/trained and have more capital plant and equipment to enhance their productivity and better infrastructure. However only rich countries can provide these things so it is not really the answer. At one time all rich countries were poor but at some point in their history they got a little ahead of the game and accumulated extra resources and improve conditions which then escalated over time. Economist debate over why this happens but they agree that free markets and property rights are a necessary but not sufficient. If we knew how to trigger growth there would not be any poor countries.

Why does some countries have high gdp and some low gdp: A country with a high GDP has either high net exports (exports-imports) wherein it is has a good performance in trade, high FDI (foreign direct investment) from private firms outside the country, high consumption (its citizens are able to spend and acquire goods), and high government spending either for technological advancement, labor development, and infrastructure. As one can clearly see that the countries in the list below, top 5, are worldwide known for good GDP, just because of the above reasons.

A country has low GDP, because it’s imports are more than its exports, second reason is that it has poor performance in trading, and has low FDI from private firms outside the country, low consumption because it’s citizens are not able to spend and acquire goods and one of the most fundamental reason is that government doesn’t spend on welfare and for development, that’s why some countries has low GDP.

1. USA = 15094.00 billion US dollars in 20112. China = 7298.10 billion US dollars in 20113. Japan = 5867.15 billion US dollars in 2011

4. Russia = 1857.77 billion US dollars in 2011

5. India = 1847.98 billion US dollars in 20116. Singapore = 239.70 billion US dollars in 20117. Pakistan = 211.09 billion US dollars in 20118. Indonesia = 166.54 billion US dollars in 2011

9. Bangladesh = 110.61 billion US dollars in 201110. Sri Lanka = 59.17 billion US dollars in 2011

Inflation rate:

” The rate of change of prices (as indicated by a price index) calculated on a monthly or annual basis.”

Inflation Rate Cause #1: An increase in demand for goods relative to supply . When more people fight over fewer goods, the price increases. It is just as true for an entire country as it is for a lamp on eBay. We have seen an increase in the inflation rate, in part, because countries like China and India, which had virtually no industrial base a few generations ago, have billions of citizens poised to enter the middle class in the coming years. That means that the fixed, small supply of global copper, silver, gold, and other commodities will be bidded upon by a much larger group of potential buyers, driving up prices. In the past, a handful of industrialized nations, such as the United States, Canada, Australia, Great Britain, Germany, France, Italy, Russia, etc. were the only ones in the game when it came to requiring oil or other commodities. That time has passed.

Inflation Rate Cause #2: An decrease in the value of each existing nominal unit of currency. Don't panic - it isn't nearly as complicated as it sounds. It's another way to say a government is printing money. If governments print money and depreciate their own currency, each dollar will buy fewer goods because dollars are less scarce. Think about it. If a school teacher is suddenly earning $150,000 per year, she is going to be able to walk into a Maserati dealer and buy a car. But Maserati production is limited - the company can only churn out a fixed number of high-quality automobiles each year. As more money floods the economy, the relative income of different professions isn't likely to change, so lawyers who made $100,000 before the inflation increase might be making $300,000. That means the teachers won't be able to compete with the lawyers - still - and the price of Maserati’s will double or triple. That is, the numbers on price tags changes but the relative purchasing power of the individual citizens hasn't changed. The teacher won't be able to afford the car but the lawyer will. The people who get hurt are those who have large investments and other fixed incomes such as Social Security.

By reading the above two most fundamental reasons, it is clear that why countries like Japan, USA, China etc. has inflation rate under control, while in countries like Pakistan, Bangladesh etc. has high inflation rate.

1. Japan = -0.40 percent in July of 2012

2. USA = 1.40 percent in July of 2012

3. China = 1.80 percent in July of 2012

4. Singapore = 4.00 percent in July of 2012

5. Indonesia = 4.58 percent in August of 2012

6. Russia = 5.90 percent in August of 2012

7. Sri Lanka = 6.00 percent in July of 2012

8. India = 6.87 percent in July of 2012

9. Bangladesh = 8.03 percent in July of 2012

10. Pakistan = 9.60 percent in July of 2012

Per capita income:

“Per Capita Income means the average income of whole population in a country in a year.”

CAUSES -OR- REASONS OF LOW PER CAPITA INCOME:

Causes of low per capita income may be divided into following three categories:

A.      Economic Causes

B. Social Causes

C. Political Causes

A.      ECONOMIC CAUSESFollowing are the economic causes of low per capita income:

1.   Vicious Circle of Poverty

Vicious circle of poverty is the largest reason of low per capita income. Developing countries including Pakistan are trapped into VCP. A poor country is poor forever due to the VCP. 21.0 % population is very poor population in Pakistan.

2. Unemployment

Unemployment is the major cause of low per capita income. Unemployment means no source of income and result is low per capita income. Rate of unemployment is 5.5 %, 16 % is underemployed and 20% is disguised unemployed in Pakistan.

3. Lack of Foreign Investment

Due to backwardness, political instabilities and improper availability of infrastructure the attraction for foreign investment is not suitable. Foreign investment (Jul-Mar) is $ 1.8 billion in Pakistan. Foreign investment is reduced by 45%. Lack of foreign investment means less employment opportunities and low per capita income.

4. Low National Income

Low per capita income in Pakistan is also the result of low level of national income. Low level of national income means low level of saving and low level of investment. All these factors contribute toward poverty.

5. Use of Backward Technology

Techniques of productions used by developing countries are backward. Due to out-dated methods of production, productivity level is low. Low level of productivity means narrowness of market and reduction in exports and increase in imports.

 6. Increase in Utility Charges

Utility charges like water, gas, electricity, telephone bills etc. are increasing day by day in Pakistan. More utility charges lead to reduction in the saving of population and its result is low per capita income. At present growth rate of electricity and gas sector is 0.4 %.

7. Poverty

Poverty in Pakistan is very common, 21.0 % population is treated as poor population. Poverty is also a cause of low per capita income. Low per capita income means low level of saving and low level of investment. Its result is poverty.

8. Backward Agricultural Sector

People have adopted just subsistence farming styles in agriculture sector. They are not farming according to the commercial patterns. Sometimes, due to natural calamities and use of backward techniques of production, there is reduction in production and it decreases the income of poor farmers. Its share in GDP is only 21.5 %.

9. Absence of Credit Facilities

Poor population is needed credit facilities to take an active part in economic activities to remove low per capita income. But in Pakistan, availability of credit is not desirable. Poor people has no access to credit it is only for rich landlords. Conditions for credit issuing are so tights and credit is not given in time.

10. Improper Income Distribution

Imbalanced distribution of resources is an additional cause of low per capita income in Pakistan. This situation leads to increase the gap between rich and poor. Due to undesirable distribution of income and wealth, poor population is unable to take part in economic activities to remove poverty. 20 % rich population has complete control over the 50 % national resources in Pakistan.

11. Low level of Productivity

Due to use of backward technologies and inefficiencies of labour & entrepreneur, productivity level in Pakistan is very low as compare to developed countries. Value of annual productivity of Pakistani labour is much lower than the value of labour of rich nations. Annual value of productivity of labour is only $ 100 against $ 2500 in advanced countries in Pakistan.

12. Low level of Saving

Low level of saving is mainly due to low income. It leads to less investment and less return. Due to less return people remains poor forever. Domestic savings are 9.9 % of GDP. Low level of saving means low per capita income in Pakistan.

13. Inflation

High rate of inflation is an extra reason for low per capita income. Due to inflation much amount of money is not enough to purchase much quantity of goods and services. Inflation decreases the savings and investments of poor people. Rate of inflation (CPI) is 13.3 % in Pakistan.

14. Imposition of Taxes

Government has to impose taxes to raise its revenue. Imposition of taxes reduces the disposable income of people. Lack of disposable income means low saving and low investment, poverty and low per capita income. Amount of FBR tax collected is Rs.1380 billions. 

15. Non-Productive Expenditures

Government has to make a lot of unproductive expenditures on social heads and to make strong defence. These high expenditures are also a reason of low per capita income.

16. Low Rate of Capital Formation

Rate of capital formation in Pakistan is very low. Low rate of capital formation means low opportunities of employment, low level of productivity and deficit in balance of payment that leads to low per capita income. Rate of capital formation is just 5 % in Pakistan.

B.     SOCIAL CAUSESFollowing are the social causes of low per capita income:

17. Population Pressure

Rapidly rising population is also a cause of poverty. Existing population is already not provided basic necessities of life. Therefore, increase in population will lead to decrease the per capita income. Now population of Pakistan is 169.94 million with growth rate of 2.05 %.

18. Dishonesty & Corruption

Low per capita income is also due to dishonesty and corruption in management. Officers receive a huge amount of illegal money for the legal and illegal job. These unnecessary payments reduce the savings of poor and result is low per capita income.

19. Illiteracy

Lack of education and training is also a cause of low per capita income. It reduces the abilities to work. Sometimes a worker due to illiteracy remains unemployed or underemployed. Similarly, lack of skill in entrepreneur also reduces his profit and its result is low per capita income. Literacy rate in Pakistan is 57 %.

20. Backward Infrastructure

Non-availability or availability of backward infrastructure is also an additional reason of low per capita income and poverty. Low level of education, backward state of technology, poor health, inefficiency of labour and poor system of transportation & communication are cause low per capita income and poverty. Backward infrastructure causes low attraction for foreign investment.

21. Low Living Standard

Pressure of foreign counties in our economic activities, backward standard of productivities and improper basic facilities to population reduces the living standard of population. Low living standard is a symbol of low per capita income. Expenditure on health sector is only 0.55 % of GDP.

C.     POLITICAL CAUSESThese are some political causes of low per capita income:

22. Law and Order

Law and order conditions are at their poor stage. A huge portion of saving of population is wasted in costly and lengthy legal process that leads to low per capita income. Chief Justices Iftikhar Muhammad Chohdery himself has to wait for a very long time.

23. Poor Governance

Instable government and instability in the policies of government are another cause of low per capita income and poverty. Every government remains failed to establish such policy that leads to reduce the poverty.

24. Landlordism

Ignorant but big landlords control our whole economy. They have no sense of social welfare. In government they take those actions that are in their personal interest. Their actions badly affect the encouragement of per capita income

25. Nepotism

Nepotism means the murder of talent and abilities. It refers to the employment opportunities according to relation not according to worth. If population is poor but is talented it remains poor due to nepotism. 16 % employed labour force is performing their services below their capabilities.

Conclusion:

            Per capita income of Pakistan is very low as compare to the per capita incomes of rich nations.  Use of modern technologies and control on population is necessary to improve the per capita income.

1. USA = 38491.54 US dollars in December 20112. Japan = 35510 US dollars in December 2011

3. Singapore = 33529.83 US dollars in December of 20114. Indonesia = 4667.96 US dollars in December of 20115. Russia = 3052.15 US dollars in December of 20116. Sri Lanka = 2835.41 US dollars in December 20117. China = 2634.71 US dollars in December of 2011

8. Bangladesh = 1788.30 US dollars in December of 2011

9. India = 1488.52 US dollars in December 201110. Pakistan = 672.10 US dollars in December of 2011

Gross National Product (GNP)

“An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.”

GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

There is an old joke among economists that states: A recession is when your neighbor loses his job. A

depression is when you lose your job.

The difference between the two terms is not very well understood for one simple reason: There is not a

universally agreed upon definition. If you ask 100 different economists to define the terms recession

and depression, you would get at least 100 different answers. I will try to summarize both terms and

explain the differences between them in a way that almost all economists could agree with.

Recession: The Newspaper Definition

The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

This definition is unpopular with most economists for two main reasons. First, this definition does not

take into consideration changes in other variables. For example this definition ignores any changes in

the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes

it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten

months or less may go undetected.

Recession: The BCDC Definition

The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

Depression

Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.

The Difference

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real

GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be

seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933

where real GDP declined by almost 33 percent, a period of recovery, then another less severe

depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-

war period. The worst recession in the last 60 years was from November 1973 to March 1975, where

real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in

recent memory using this definition.

Now you should be able to determine the difference between a recession and a depression without

resorting to the poor humor of the dismal scientists.

1. USA = 15,097,083 billion dollars2. China = 6,628,086 billion dollars3. Japan = 5,774,376 billion dollars4. Germany = 3,549,303 billion dollars5. France = 2,775,664 billion dollars6. UK = 2,366,544 billion dollars7. Italy = 2,146,998 billion dollars8. Brazil = 2,107,628 billion dollars

9. India = 1,746,481 billion dollars10. Canada = 1,570,866 billion dollars

References/Sources:

http://economics.about.com/cs/economicsglossary/g/gross_national.htm

http://www.investopedia.com/terms/g/gnp.asp#axzz265hl3evy

http://ahsankhaneco.blogspot.com/2011/12/causes-of-low-per-capita-income-of.html

http://www.tradingeconomics.com/search.aspx?q=inflation%20rate%20indonesia&sa=Search&cx=partner-pub-3400948010513654:2035820411&cof=FORID:10&ie=UTF-8