Per Capita Income (PCI) as an Indicator

Per Capita Income (PCI)

Per capita income is calculated as:

For decades, PCI was the standard yardstick used to compare countries and to classify them as rich or poor, and it remains useful because it is simple to compute and is directly linked to national income accounting.

Limitations of PCI as a development indicator

1. Averages hide inequality. A rising PCI can coexist with a small section of the population capturing most of the gain while the majority sees little real improvement.
2. Ignores non-income welfare. Health, education, life expectancy, and access to clean water and sanitation are not captured at all.
3. Ignores the composition of output. PCI does not distinguish between output that raises ordinary living standards and output that does not.
4. Currency and price-level problems. Comparing PCI across countries meaningfully needs a purchasing-power-parity (PPP) adjustment; without it, cross-country comparisons can be misleading. …