What makes one country richer than the other? Is it the abundance of natural resources or is it the total number of billionaire citizens? Well, actually it is none of these, instead there is a universal economic indicator that help us decide which nation is more prosperous than the other.
Purchasing Power Parity and Geary-Khamis Dollar
The purchasing power parity or PPP is used to determine the relative value of different currencies and it also plays a crucial role in determining the exchange rates.
The entire concept of purchasing power parity is based on the law of one price, which states that in the absence of trade barriers and transaction costs and when the prices are denoted in one currency, the similar goods will have a similar price in different international markets.
But in real world situations, transactions costs do exist along with trade barriers. So to adjust currency exchange rates for PPP differences, economists use a hypothetical currency known as Geary-Khamis dollars or “international dollars”.
Below is the list of the 18 richest countries in the world based on data provided by the International Monetary Fund in 2017. As a reference, we have also included the GDP (nominal) per capita.
Nordstan, one of the largest shopping malls in Sweden
PPP Per Capita: Int$ 51,264
Nominal GDP Per Capita: US$ 53,218
Sweden has a trade-oriented economy, which is well supported by its rich iron ore deposits, timber and hydropower. Although, the country is known for its manufacturing capabilities, it also has a great telecommunication and pharma industry.
On the other hand, agricultural activity accounts for only 2% of nation’s total GDP. Four of the largest companies (Volvo, Ericsson, Vattenfall and Nordea) by revenue in Europe are based in Sweden.
Manama skyline, capital city of Bahrain
PPP Per Capita: Int$ 51,846
Nominal GDP Per Capita: US$ 24,029
Bahrain, formally known as the Kingdom of Bahrain is a small island nation situated in the Persian Gulf, near the eastern coast of Saudi Arabia. Its economy, unlike other nations in the Persian Gulf depends less on oil, but it still plays a significant role. Since 1980s, Bahrain has invested heavily in other sectors like finance and tourism.
Agriculture contributes very little to the nation’s economy. Since less than 3% of land is ideal for agriculture, Bahrain heavily depends on other nations for food products. Back in 2005, it became the very first Gulf nation to enter into a free-trade agreement with the United States.
Iceland Export Treemap | Image Courtesy: R. Haussmann, Cesar Hidalgo, from MIT Harvard OEC
PPP Per Capita: Int$ 52,150
Nominal GDP Per Capita: US$ 70,332
The great financial crisis of 2008 traumatized the entire banking system of Iceland, which soon led to a total economic failure. A year before, Iceland was one of the most productive nations in the world with a higher purchasing power parity.
However, from 2010 a substantial increase in tourist activities has boosted Iceland’s economy. In 2017, about 10% of the nations ‘GDP came from tourism sector alone. Apart from tourism, agriculture and manufacturing industry also plays a major role in Iceland’s economy.
The Binnenhof, an important building in Netherlands’ political system
PPP Per Capita: Int$ 53,582
Nominal GDP Per Capita: US$ 48,346
The Netherlands has played a crucial role in the European economy since medieval times and it continues to do so. Do you know that the very first stock market exchange was established in the Netherlands in 1602. Dutch economy also witnessed first ever recorded market bubble in the form of Tulip Mania.
Today, Netherlands’ economy revolves around trade, banking and agriculture. The Netherlands ranks high in the Global Enabling Trade Report and one of the most competitive economies in the world. Some of the well-known Dutch companies are Royal Dutch Shell, Phillips, Unilever, Heineken, ING and KLM.
14. Saudi Arabia
Abdel Fattah el-Sisi, King Salman with U.S President Donald Trump and first lady Melania Trump
PPP Per Capita: Int$ 55,263
Nominal GDP Per Capita: US$ 21,120
Occupying the majority of the Arabian Peninsula, Saudi Arabia is the largest nation in the middle east and fifth largest in Asia. Like almost every other Arab nation, Saudi’s economy is also based on oil with 90% of trade earnings comes from the petroleum industry. Saudi Arabia is currently is the second largest producer of oil just behind the United States.
Apart from oil and natural gas, Saudi also has small deposits of gold mines in a few regions. Its primary or agriculture sector is completely based on Arabian Desert and livestock. Tourism in the country is largely comprised of a seasonal influx of religious pilgrimages during the holly hajj season.
Saudi Armanco, a petroleum and natural gas behemoth is headquartered in the city of Dhahran, Saudi Arabia.
13. United States
Midtown Manhattan Image Courtesy: Dschwen
PPP Per Capita: Int$ 59,495
Nominal GDP Per Capita: US$ 59,501
The United States has been at the center stage of the world’s economy for a long time and it is more likely to stay that way. Its economy is powered by a skilled workforce, technology, and abundant natural resources. US has the world’s largest GDP, it is the largest importer and the second largest exporter of goods.
Some of the largest companies in almost every sector are U.S based. Google, Microsoft, Apple, Amazon, Facebook (tech), Berkshire Hathaway, JP Morgan Chase, Bank of America (finance and services), McDonalds, KFC and Subway (fast food conglomerate), Cargill and Koch Industries (natural resources and agricultural companies).
Though its agricultural output contributes only 1% to the total GDP, it is still the largest producer of soybeans and corns in the world.
12. San Marino
A common street in San Marino Image Courtesy: Cezar Suceveanu
PPP Per Capita: US$ 60,359
Nominal GDP Per Capita: US$ 47,406
The Republic of San Marino located on the eastern side of Apennine Mountains is basically a small enclave state which is completely surrounded by Italy. At just 61 km2, San Marino is the 3rd smallest country in Europe after Vatican City and Monaco. Its economy on the other hand is considerably large.
With main focus on various industries, banking, tourism and services, its nominal GDP per capita is comparable to that of large European nations such as Netherlands, Sweden and Denmark. It is also known for extremely low unemployment rates, zero government debts and economic stability.
11. Hong Kong
Hong Kong Skyline Image Courtesy: Jim Trodel
PPP Per Capita: Int$ 61,016
Nominal GDP Per Capita: US$ 46,109
Hong Kong is one of the two special administrative regions (SARs) of China and since 1997, it maintains a separate economic system than the rest of the country. Low taxation and minimal federal intervention are a few of the most important characteristics of Hong Kong’s economy.
About 90% of the Hong Kong’s GDP comes from its service sector. Its geographic location makes it one of the busiest sea ports in the world. More than 50% of the cargo it handles are transshipments, goods and containers passing through the region.
Moreover, Hong Kong has a high Human Development Index, one of the highest life expectancy and per capita income.
Credit Suisse, the second largest bank in Switzerland Image Courtesy: Claude Meisch
PPP Per Capita: Int$ 61,360
Nominal GDP Per Capita: US$ 80,591
Switzerland is known for its banking prowess. Two of its three largest banks, UBS and Credit Suisse are among the global leaders in financial services. About 10%-12% of the total GDP comes from its banking sector alone.
Many of you many not know that Switzerland has a highly organized and skilled work force. Most of its exports are high-tech products including watches, appliances and inch-perfect medical instruments like vaccines and other medical instruments.
It also has a powerful industrial base. Large multinational companies like Nestle, Novartis and LafargeHolcim are all based in the Switzerland.
9. United Arab Emirates
Image Courtesy: Tim Reckmann
PPP Per Capita: Int$ 68,245
Nominal GDP Per Capita: US$ 37,226
Occupying a small region in the southeastern end of the Arabian Peninsula is the United Arab Emirates or simply UAE. It is a federal absolute monarchy comprised of seven emirates most significant being Abu Dhabi, which also serves as the capital. With a gigantic GDP (nominal) of US$ 400 billion, it is currently the second largest economy among GCC nations.
UAE has predominantly an oil based economy, however many steps have been taken by the government to diversify into different sectors. Large scale investment in infrastructure has boosted tourism throughout the nation in the last decade.
Kuwait Liberation Tower Image Courtesy: Mohammad Alattar
PPP Per Capita: Int$ 69,669
Nominal GDP Per Capita: US$ 27,319
Oil in considerable amounts in Kuwait was first discovered sometime around 1930s. The discovery boosted the nation’s economy to a great extent. This growth was, however, halted due to economic and political reasons in 1980s all the way in the late 1990s. Kuwait’s invasion of Iraq in 1990 was the most significant of them.
More than 50% of the nation’s GDP and 90% of the government’s income comes from petroleum exports, while the rest comes from financial services and tourism.
Kuwait has a strong international presence. It is currently a major U.S ally outside NATO. Kuwait also has a strong relationship with ASEAN nations, particularly with China.
Oslo at night Image Courtesy: Jørn Eriksson
PPP Per Capita: Int$ 70,590
Nominal GDP Per Capita: US$ 74,941 (3rd)
Located in the northwestern part of the Scandinavian Peninsula, Norway is one of the most prosperous nations in the world. It has the lowest Gini coefficient (measurement of wealth distribution, lower means more equality), highest HDI, and it is also the second happiest nation in the world.
Norway’s economy is a perfect example of mixed economy; state ownership in important sectors such as health care while a strong prevailing free capitalist market. While the service sector accounts for more than 60% of country’s total GDP, oil plays an important role in its economy. Norway is Europe’s largest oil producer ahead of the United Kingdom.
The International Financial Services Center (La Touche House) Dublin Image Courtesy: Matti Blume
PPP Per Capita: Int$ 72,632
Nominal GDP Per Capita: US$ 70,638 (4th)
Ireland is an open economy state. It ranks 6th on the Index of economic freedom and first for the high value FDI (foreign direct investment) flows. The country joined the European Economic Community (EEC) in 1973 and was quick to take advantage of liberal economic policies that jump-started the Irish economy from a relatively pale state.
This growth, however, was briefly halted during the global economic crisis of 2008. About 70% of Ireland’s GDP comes from its service sector, about 28% from industries and less than 2% from agriculture.
Sultan Omar Ali Saifuddin Mosque, Brunei Image Courtesy: Jim Trodel
PPP Per Capita: Int$ 76,743
Nominal GDP Per Capita: US$ 29,712 (28th)
Brunei is an extremely rich state located in the island of Borneo, world’s third largest island, in Southeast Asia. More than 90% of its GDP comes from oil and natural gas production and the rest from tourism and other economic activities. Brunei is the sixth largest oil producing nation in South East Asia and Pacific region and have fifth largest oil reserve.
The Esplanade, performing arts center Image Courtesy: Erwin Soo
PPP Per Capita: Int$ 90,531
Nominal GDP Per Capita: US$ 57,713 (8th)
Republic of Singapore is a small island country located in southeast Asia just above the Equator in the Northern Hemisphere. The entire nation is composed of 62 islets and one large island.
Singapore’s economy remained stagnant during its early years as a sovereign nation. However, due to the rise of various industries and favorable policies, the country quickly became one of the fastest growing economy in Asia. It is one of the four original Asian Tigers along with Taiwan, Hong Kong and South Korea.
Singapore is a global leader in various economic sectors, including finance, oil and oil-related manufacturing and hardware. It is currently the 4th largest financial center in the world, 2nd largest gambling market and one of the busiest logistics hubs.
Banque et caisse d’épargne de l’État (Spuerkeess) headquarters in Luxembourg City | Image Courtesy: Zinneke
PPP Per Capita: Int$ 109,192
Nominal GDP Per Capita: US$ 105,803 (1st)
Luxembourg is a tiny, yet an important nation in western Europe. Its capital, Luxembourg City serves as one of the four capitals or institutional seats of the European Union along with Brussels, Frankfurt and Strasbourg. The European Court of Justice is also located in the City. The country is landlocked and shares boundaries with Germany, Belgium and France.
The country’s industrial sector is although diversified, it is largely focused on steel and iron production. Automotive component sector and chemical industry is also on the rise. Luxembourg’s economy is mainly supported by its financial sector. It is the second largest investment fund center in the world only after the United States.
View of casinos in Macau | Image Courtesy: Diego Delso
PPP Per Capita: Int$ 114,430
Nominal GDP Per Capita: US$ 77,451
Like Hong Kong, Macau is also identified as a special administrative region of China. Its economy is supported mainly by tourism and gambling. Since 2000, Macau has registered an exponential increase in the total number of tourists it receives each year.
A similar trend has been noted in Macau’s ever growing gambling industry. Other significant economic activities include textile manufacturing and financial services.
Doha City | Image Courtesy: UNCTAD
PPP Per Capita: Int$ 124,927
Nominal GDP Per Capita: US$ 60,804 (6th)
The State of Qatar is without a doubt one of the mightiest nations in the Arab world. Qatar’s economy is powered by natural gas and petroleum, which makes more than 70% of the total federal revenue. It has the largest natural gas reserve in the world. Qataris enjoy a high living standard, no income tax and extremely low unemployment rate.
Long before the discovery of oil, Qatar’ economy was mainly supported by pearl hunting and fishing activities. Historical evidences of pearl trading were founded in many official transcripts of the Ottoman Empire in 1890s. Oil was discovered in Qatar for the very first time in 1940 in Dukhan Field.