GDP per capita: concept, calculation and limitations

February 2026 by André Themudo

Gross Domestic Product (GDP) is one of the main macroeconomic indicators used to assess the size and level of economic activity of a country, serving as an essential reference for the formulation of public policies, business decisions, and comparative analyses between economies. In short, GDP represents the aggregate monetary value of all final goods and services produced within national borders during a given period, usually annually or quarterly.

Its assessment excludes intermediate goods in order to avoid duplication and overestimation, and can be carried out through three conceptually equivalent approaches: The production perspective, which considers value creation in the various sectors of the economy; The expenditure approach, which includes consumption, investment, government spending, and net exports; and the income approach, which sums the income generated by production, including wages, profits, and taxes net of subsidies.

Despite its relevance as a measure of economic size, total GDP alone does not allow us to assess the average level of wealth or production associated with the resident population. Economies with a high GDP can also have a large population, which dilutes the average value per capita. To overcome this limitation, the GDP per capita indicator is used, which relates total production to population size.

How is it calculated?

GDP per capita is therefore obtained by dividing a country's total GDP by its resident population. In operational terms, this indicator corresponds to dividing the total GDP by the total number of inhabitants, transforming a macroeconomic aggregate into an average value per resident. This transformation allows for a more realistic analysis of the average standard of living of the population and facilitates temporal comparisons between different periods and international analyses between economies of different sizes. GDP per capita is widely used by economists, financial analysts, public policy managers, and international institutions to understand economic trends and plan sustainable development strategies.

This indicator is widely used as an approximation of the average level of production or income per capita, and is often interpreted as a measure of the degree of economic development. In Portugal, the data needed to calculate GDP per capita comes from the national accounts, compiled by the National Institute of Statistics, and is used by various official entities, including the Bank of Portugal, the Securities Market Commission (CMVM), and European bodies such as Eurostat.

GDP per capita can be presented at current prices, reflecting the nominal values of the period under analysis, or at constant prices, adjusted for the effect of inflation, which allows for real comparisons over time. In international analyses, it is equally common to use GDP per capita adjusted for Purchasing Power Parity (PPP), which aims to neutralize differences in price levels between countries and ensure greater comparability in terms of effective purchasing power.

The limitations of GDP per capita

Despite its analytical usefulness, GDP per capita has significant limitations. It is an average measure that does not reflect the distribution of income in the economy; Therefore, it is possible for high levels of GDP per capita to coexist with marked economic inequalities. Furthermore, this indicator does not cover essential aspects of well-being, such as the quality of public services, health, education, the environment, or the balance between work and personal life. For this reason, it is often complemented by other indicators, such as measures of inequality and composite human development indices.

In short, GDP per capita is a central tool in economic analysis, allowing us to relate a country's total output to its population and facilitating temporal and international comparisons. However, its interpretation must be done cautiously, within a broader set of economic and social indicators, in order to provide a balanced view of the development and well-being of society. Its informed application contributes to more effective economic policy decisions, more sustainable business strategies, and a deeper understanding of national and global economic dynamics.