Why Smaller Countries Have a Greater Gross Domestic Product

Subject: Economics
Pages: 1
Words: 256
Reading time:
< 1 min

Economists use the gross domestic product (GDP) as an indicator of prosperity in the country. To put it simply, GDP is the state’s annual income; therefore, GDP per capita is the amount of money the national economy produces per person per year, which demonstrates the country’s standard of living. GDP is closely tied with the productivity of the national economy, which, in turn, depends on the natural resources the country has in its possession. Due to the phenomenon known as the “resource curse”, there are various examples of smaller European countries like Switzerland or the Netherlands doing much better economically than states which have an abundance of crucial resources like oil, gas, etc.

There are multiple reasons why the curse has not been lifted for decades in countries like Ghana, Uganda, Angola, and others. It is important to understand that the high levels of economic growth do not translate into increased human development indexes. Because of the countries’ political dysfunction and corruption, only elites benefit from resource export. As a result, the quality of life remains the same, which leads to people having few to no savings (therefore, no investments). By neglecting their people, resource-rich nations put themselves in a position where they have no technological knowledge (which depends on investments) and no human capital (resource extraction does not create many jobs). In addition, there is something known as the Dutch disease, which refers to resource revenues increasing the country’s exchange rate (strong currency) while impeding non-resource sectors’ exports.