Pinpointing the Richest Country in the World Is Tricky Work

By: Dave Roos  |

How do economists determine the world's richest country? Do they add up the average annual wage and bank account value of every citizen? Do they calculate the market value of every home, car and corporation? Not exactly.

For more than 75 years, the standard measurement of a country’s wealth has been gross domestic product or GDP. The brainchild of American economist and statistician Simon Kuznets, GDP is a measurement of the total value of a country’s economy. The richest countries, in other words, are the ones with the most productive economies.

But not everyone thinks that GDP is the best metric for measuring prosperity. We spoke with Dirk Philipsen, an economics professor at Duke University and author of “The Little Big Number: How GDP Came to Rule the World and What to Do About It.” Philipsen and many other economists argue that we should ditch profit-driven GDP for a metric that reflects not just economic production, but also quality of life and environmental sustainability.

But until that happens, we’re stuck with GDP as the standard measurement of the richest country in the world.

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Richest Countries in the World by GDP

What exactly goes into calculating gross domestic product (GDP)? According to the International Monetary Fund, GDP is the “monetary value of final goods and services” produced in a year. In other words, a country’s GDP is the total value of every car, computer and cucumber produced for sale, as well as the total value of services like car repair, healthcare and banking.

You can also calculate GDP by adding up all of the money spent within an economy (expenditures) by consumers, industries and the government. A simplified formula for calculating GDP, according to the World Economic Forum, is:

Gross Domestic Product = Consumption + Government Expenditure + Private Investment + Exports – Imports

For economists, investors and policymakers, changes in GDP (quarterly or annually) are one of the most significant indicators of a country’s overall economic health.

According to the latest data (2022) from the World Bank, here are the richest countries in the world by GDP:

1. United States: \$25.5 trillion
2. China: \$18.0 trillion
3. Japan: \$4.2 trillion
4. Germany: \$4.1 trillion
5. India: \$3.4 trillion
6. United Kingdom: \$3.1 trillion
7. France: \$2.8 trillion
8. Russian Federation: \$2.2 trillion
10. Italy: \$2.0 trillion

Richest Countries in the World by GDP Per Capita

Using GDP alone as a measure of a nation’s wealth only tells you half of the story. Bigger and more populous countries have a distinct advantage, since they have more workers to produce more goods and services. The only way to make an apples-to-apples comparison is to calculate each country’s GDP per capita (per person).

To calculate per capita GDP, you start with a country’s gross domestic product and divide that by its total population. Let’s use the United States as an example:

\$22.9 trillion (2021 GDP) ➗ 331 million (2021 population) = \$69,185 (2021 GDP per capita)

On the surface, GDP per capita seems like a fairer and more accurate indicator of a country’s wealth, since it’s measured on an individual basis. But something strange happens when you run the numbers: Some of the wealthiest nations in the world according to GDP per capita are also some of the smallest.

Here are the top 10 richest countries in the world by GDP per capita, according to the latest data (2021) from the United Nations:

1. Monaco: \$234,317
2. Liechtenstein: \$169,260
3. Luxembourg: \$133,175
4. Bermuda: \$112,653
5. Ireland: \$101,109
6. Switzerland: \$93,525
7. Norway: \$89,242
8. United States: \$69,185
9. Iceland: \$69,133
10. Denmark: \$68,037

The Tax Havens Effect

So the question is, why do tiny countries like Monaco, Liechtenstein and Luxembourg top the list of rich countries by GDP per capita? For one, a lot of money flows through these small European countries, and very few people actually live there.

But the biggest reason is that those three countries, along with Bermuda, Ireland and Switzerland, are considered tax havens. Although there isn’t a standard definition, a tax haven is any country that offers very low tax rates for either international corporations, individuals or both. Tax havens attract foreign investment from international companies that want to “shelter” their money from higher taxes back home.

Ireland, for example, has a corporate tax rate of just 12.5 percent, which is less than half the corporate tax rate of the United States (25.81 percent). Because of that attractive tax rate, many large tech corporations — including Apple, IBM, Google and Facebook — have set up operations in Ireland to the tune of one trillion euros in foreign investment each year.

The problem with these international business practices is that very little of that investment from foreign businesses trickles down to the people who live in the tax haven. So it’s not quite accurate to say that the average citizen of Bermuda or Monaco is worth several hundred thousand dollars.

“The obvious flaw of GDP per capita is that it’s an average,” says Philipsen. “If there are two people in a bar who each make \$10,000 a year and then Bill Gates walks in, suddenly they each earn an average of hundreds of millions of dollars a year. In that sense, GDP per capita tells you absolutely nothing about the well-being of the individuals.”

Why GDP Is a Flawed Metric

Since World War II, GDP has been the leading global economic indicator of a country’s economic wealth. And World Population Review states, "Even the wealthiest countries have some citizens living in poverty, and even the poorest countries are home to a number of extremely rich residents — but it is a fair indicator of a country's overall financial health."

But GDP has its critics, especially when GDP is used as a proxy not only for wealth but also well-being.

“GDP is a terrible metric for measuring well-being,” says Philipsen. “It’s not even a particularly good economic metric. It measures nothing but the output of an economy without differentiating between output that’s ‘good,’ ‘bad’ or ‘neutral.’ GDP measures weapons as much as toys, oil spills as much as health insurance.”

Even the creator of GDP, Simon Kuznets, recognized the danger of misinterpreting GDP as anything but a useful economic formula. “The welfare of a nation can scarcely be inferred from a measure of national income,” Kuznets told Congress in 1934.

Traditionally, there was an assumption that a country’s GDP growth ran parallel with overall improvements in the standard of living, but those trends haven’t held up. Philipsen points out that the United States, despite having the highest GDP in the world (by far), is experiencing a shocking decline in average life expectancy.

The fact that Americans are dying younger on average than people in less wealthy countries is a sign that there must be more to well-being than economic growth at any cost.

“My primary argument is that the emphasis on GDP — which is all about unfettered economic growth and return on investment — is not only unsustainable, but it’s entirely undesirable,” says Philipsen. “It does not make life better.”

Alternatives to GDP

Economists at the World Bank and the UN and organizations around the world have been trying for decades to come up with a better economic indicator than GDP. Philipsen estimates that there have been more than 900 attempts at making an alternative indicator, most of them ending in failure.

Still, there are a handful of GDP alternatives that take a more balanced and holistic approach to measuring wealth and well-being:

• The World Bank tracks a figure called Adjusted Net Savings, which takes a country’s gross national savings and subtracts negative environmental impacts like greenhouse gas emissions and the depletion of natural resources. It also gives credits for education spending.
• The Human Development Index, created by the UN, ranks countries based on four metrics: the country's gross national income (GNI), life expectancy at birth, expected years of schooling and mean years of schooling.
• The Genuine Progress Indicator is Philipsen’s favorite because it tracks 26 different metrics in three broad categories: economic, social and environmental.

Unfortunately, Philipsen doesn’t hold out much hope that GDP is going to be dethroned as the primary economic indicator. To do that would require a wholesale rethinking of the world’s economic priorities.

“You can come up with the best indicators in the world and everyone can agree that they’re better than GDP, but it still makes no difference,” says Philipsen. “Why? Because the economic system still operates based on one goal: growth and profit.”