Comparing Growth Rates & Living Standards (Cambridge International A-Level Economics)

Comparison over time

• Comparing a country's economic growth and living standards over time requires real GDP per capita figures adjusted for inflation

  • Nominal figures are misleading because rising prices can increase GDP without any increase in output or welfare

• Even real GDP per capita can give a distorted picture over time because:

  • The composition of output changes

    • A country that shifts spending from consumer goods to military production may show rising GDP but falling welfare

  • Population distribution changes

    • Rising GDP per capita does not reveal whether gains are concentrated among the wealthy or shared broadly

  • Non-marketed activity changes

    • As economies formalise, activity previously outside GDP enters the measured economy, inflating apparent growth

  • Environmental degradation accumulates

    • Sustained growth may be achieved at the cost of resource depletion and pollution not captured in GDP figures

• The most reliable time-series comparisons use PPP-adjusted real GNI per capita alongside non-monetary indicators such as life expectancy and literacy to check whether income gains are translating into genuine welfare improvements

Comparisons between countries

• Comparing living standards across countries requires additional adjustments beyond real GDP per capita

Case Study Comparing economic growth and living standards in Vietnam and Philippines, 1995–2023

The context

Vietnam and the Philippines are both Southeast Asian economies with populations of around 100 million and comparable development levels in the mid-1990s

Both experienced significant GDP growth over three decades yet produced markedly different living standard outcomes, illustrating why growth rates alone are insufficient for comparing welfare.

Actions taken

• Vietnam pursued export-oriented manufacturing following its Doi Moi reforms, attracting FDI into electronics, textiles and footwear - growth broadly distributed across the workforce and supported by public investment in healthcare and education
• The Philippines relied more heavily on remittances and business process outsourcing - a model that raised incomes for a relatively narrow urban and skilled segment while leaving agricultural and informal workers behind

Outcomes

• Vietnam's PPP-adjusted GDP per capita rose from approximately $2,000 in 1995 to over $13,000 by 2023

  • The Philippines rose from $3,500 to $9,500 - Vietnam started lower but ended higher

• Vietnam's HDI reached 0.73 by 2022, crossing into the high human development category

  • The Philippines reached 0.70, remaining in the medium category despite starting ahead

• Vietnam's absolute poverty rate fell from 58% in 1993 to under 5% by 2020

  • The Philippines remained above 18% as recently as 2021

The case shows that broad-based manufacturing employment produces faster poverty reduction than growth concentrated in high-skill services and remittances - and that starting income level is not a reliable predictor of future welfare outcomes