Indicators of growth: GDP, GDP per capita and HDI

GDP and GDP growth

Gross domestic product (GDP) is the total value of goods and services produced in a country in a year. It measures the size of an economy.

Economic growth is the percentage increase in real GDP (GDP adjusted for inflation):

growth rate = (GDP this year - GDP last year) / GDP last year x 100.

Real growth is roughly nominal growth minus inflation. A business uses GDP to judge total market size and growth to judge how fast demand is rising.

GDP per capita

GDP per capita = GDP / population. It measures average income per person, a better guide to living standards and spending power than total GDP. India has a large GDP but a low GDP per capita; a small Gulf state may have the reverse.

Limitations: it is an average and hides inequality; it ignores the informal economy and unpaid work; prices differ between countries, so comparisons often use purchasing power parity (PPP) to allow for what money actually buys; it says nothing about health, education or the environment.

The Human Development Index (HDI)

The UNDP's HDI combines three dimensions, each turned into an index between 0 and 1:

• Health: life expectancy at birth
• Education: mean years of schooling (adults) and expected years of schooling (children)
• Standard of living: GNI per capita (PPP $)

The HDI is the geometric mean of the three indices, so it runs from 0 to 1; higher is better. It gives a broader picture than GDP per capita, but still ignores inequality, political freedom, the environment and the quality of education.

Source: UNDP Human Development Report 2025, statistical annex

Using indicators in the exam

The October 2024 series WBS14 paper asked candidates to discuss HDI as an indicator of growth (8 marks). Good answers explained what HDI includes that GDP misses (health, education), used figures from the extract, then gave limitations such as those in the mark scheme (it does not show how income is distributed, and it misses quality of life, civil liberties and problems such as inflation) before judging how useful it is for a business decision.

Worked example

Saudi Arabia's GNI per capita (2021 PPP $) was 50,299 and its HDI 0.900; the UK's were 54,372 and 0.946 (UNDP, 2023 data). Calculate how much higher UK GNI per capita was, as a percentage of Saudi Arabia's.

1. Difference = 54,372 - 50,299 = 4,073
2. 4,073 / 50,299 x 100 = 8.1%

Answer: About 8.1% higher, while the UK's HDI was 0.046 higher.

Check yourself

1. A country's real GDP rises from $480 bn to $504 bn. Calculate the growth rate.
   Show answer

   5.0 %. (504 - 480) / 480 x 100 = 5.0%.

2. A country's GDP is $1,350 bn and its population is 90 million. Calculate GDP per capita.
   Show answer

   $15000. 1,350,000,000,000 / 90,000,000 = $15,000.

3. Nominal GDP grew by 9.5% and inflation was 6.0%. Approximately what was real GDP growth?
   Show answer

   3.5 %. Real growth is approximately nominal growth minus inflation: 9.5 - 6.0 = 3.5%.

4. Using the UNDP 2023 data, by how many years did life expectancy in Norway (83.3) exceed that in Nigeria (54.5)?
   Show answer

   28.8 years. 83.3 - 54.5 = 28.8 years.

5. HDI is the geometric mean of three indices. Türkiye's 2023 indices were health 0.880, education 0.800 and income 0.883. Calculate its HDI to 3 decimal places.
   Show answer

   0.853. (0.880 x 0.800 x 0.883)^1/3 = 0.853, matching the published value of 0.853.

6. Why might GDP per capita overstate the spending power of most people in a country?
   • It counts only the informal economy
   • It is an average, so a few very rich people can pull it up
   • It already allows for inequality
   • It is measured in local currency only
   Show answer

   It is an average, so a few very rich people can pull it up. A high average can hide a very unequal distribution of income.

7. Explain one advantage of HDI over GDP per capita for a business judging living standards in a country.
   Show answer

   HDI also includes health (life expectancy) and education (years of schooling), so it shows the wellbeing and skills of the population, not just average income.. HDI is broader: it adds health and education to income, which tells a business about the workforce and consumers.

8. Why do international comparisons often use GDP per capita at purchasing power parity (PPP)?
   • To remove the effect of population size
   • To include unpaid work
   • To allow for differences in the cost of living between countries
   • To measure income inequality
   Show answer

   To allow for differences in the cost of living between countries. PPP adjusts for what a unit of money actually buys in each country.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)
• UNDP Human Development Report 2025: statistical annex, HDI table (2023 data)
• UNDP Human Development Report 2025: technical notes
• Pearson Edexcel IAL Business WBS14/01 mark scheme, October 2024 series (published January 2025)

Last updated 8 November 2026. Spotted a mistake? Tell us.