Statistics on Gross Domestic Product (GDP) Correlations

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Before you start reading this page, it may be useful to read this word of caution about the correlation-causation problem.

Content:

1. GDP and corruption
2. GDP and poverty
3. GDP and the resource curse
4. GDP and economic freedom
5. GDP and rule of law
6. GDP and democracy
7. GDP and infant mortality rates
8. GDP and life expectancy
9. GDP and education
10. GDP and the environment
11. GDP and happiness
12. GDP and unemployment

1. GDP and corruption

The graph below shows the correlation between low levels of GDP and high levels of corruption (Corruption Perception Index, or CPI, of Transparency International):

Here’s another study pointing to the same conclusions:

(source)

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2. GDP and poverty

As an empirical matter, economic growth (annual growth in GDP per capita) and poverty reduction go hand in hand.

(source)

(source)

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3. GDP and the resource curse

Why do countries with lots of natural resources tend to do worse than countries with less resource wealth, both in terms of economic growth and in political, social and human rights terms? We see that countries which own lots of natural resources such as diamonds, oil or other valuables that are found in the ground, are often relatively poor, badly governed, violent and suffering from gross violations of human rights.

This figure shows the correlation between resource exports as a share of GDP for a number of countries and their GDP growth:

(source)

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4. GDP and economic freedom

Economic freedom consists of personal choice, the ability to make voluntary transactions, the freedom to compete, and security of privately owned property. This is the definition of the Fraser Institute. This institute tries to measure the degree to which the policies and institutions of countries support economic freedom. Their index measures:

• size of government
• legal structure and security of property rights
• access to sound money
• freedom to trade internationally and
• regulation of credit, labor and business.

They conclude that economic freedom has grown considerably in recent decades and that economic freedom is correlated with income. This is their most recent country ranking:

The complete list of countries is here.

The following chart shows the correlation between economic freedom and prosperity measured in terms of GDP per capita. Although there are many elements promoting or discouraging prosperity, it is necessary to stress the importance of economic freedom in the struggle against poverty.

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5. GDP and rule of law

(source)

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6. GDP and democracy

Cross-country analysis shows a partial correlation:

(source)

More interesting is an in-country analysis. This paper, by Elias Papaioannou and Gregorios Siourounis, examines the effect of democratic transitions on economic growth. Since democracy and the absence of poverty are both human rights issues, and since poverty usually correlates with insufficient economic growth, it is encouraging to see that countries which have experienced a transition to democracy experience higher average growth after the transition.

The graph below, from the paper, plots the evolution of real per capita GDP growth in the years surrounding a successful democratization (the year of the democratization being T), compared to the global growth rates in each year. The average growth is the purple dashed line. The graph also shows that the transition itself may imply economic costs, but in the longer term democracy pays off.

Now, democracy is of course desirable for many reasons, and most of these are unrelated to the economy. But the fact that democracy produces economic gains will make it even more attractive.

Why does this happen? Why is democracy good for economic growth? For many reasons, some of which are the rule of law and respect for human rights (property rights, freedom of information etc.). More here.

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7. GDP and infant mortality rates

Not surprisingly, wealthy countries – wealthy in the commonly accepted sense of high GDP per capita – have a lower IMR because they have the means to invest in healthcare, sanitation, drugs etc.:

But this is not necessarily the case, as shown by the outliers in the following graph:

(source)

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8. GDP and life expectancy

The following graph shows the correlation between level of GDP per capita and life expectancy rates, one indicator of poverty and one of the three elements of the HDI:

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9. GDP and education

The following graph shows the correlation between GDP per capita and education (more specifically enrollment rates in secondary education):

Correlations do not show causal links but it is likely that the causation works both ways: higher GPD per capita means better education (because of more investment in education) and better education means higher GDP.

(source)

Notice that in the last graph, the education level is dated in 1900, showing how strong over time the link between better education and GDP is. Better educated people have better educated children and so on.

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10. GDP and the environment

This curve shows a U-shaped relationship between per capita income (GDP) and the quality of the environment. Measures of the quality of the environment do indeed fall in the initial stages of economic growth, but this trend turns around at about $5.000 per capita GDP, with many measures of environmental damage showing improvement from $8.000 onwards (source).

(source)

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11. GDP and happiness

We establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is similar to the relationship between subject well-being and income observed within countries. Those enjoying materially better circumstances also enjoy greater subjective well-being and ongoing rises in living standards have delivered higher subjective well-being. Betsey Stevenson and Justin Wolfers (source)

This study, based on two cross-country happiness surveys (one by Pew and another by Gallup), found that richer countries are happier than poorer ones, and that this is reflected internally in countries (rich people are happier than poor people). No surprise perhaps, but an additional reason to fight poverty, on top of the reasons linked to under-education, ill-health, lack of political representations etc.

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12. GDP and unemployment

Here’s a scatterplot of annual GDP growth rates versus annual changes in the unemployment rates over the past 60 years, for the U.S.:

GDP and unemployment correlation

(source)

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