How does GDP affect cost of living?
In: Economics
It doesn’t. GDP is just an accounting term for sum of all goods and services produced in an economy in a year. Cost of living might or might not correlate with it. Cost of living in Luanda is very high….yet Angola as a whole doesn’t compare favorably on GDP vs. many other, cheaper places to live.
It doesn’t.
GDP is a calculation of the value all (gross) the goods produced (product) in a country (domestic). (Gross domestic product).
Now there can be some correlation, where countries with High GDPs have high costs of living, but this often isn’t really the cost. For example, Luxembourg has a GDP of roughly 70Billiom US dollars. Significantly less than the US, which is 20.5 Trillion dollars. But Luxembourg has on average a higher cost of living.
Nigeria on the other hand has a GDP of 300 billion USD. But has a much lower cost of living.
It doesn’t directly. But places with a higher GDP per capita tend to have higher costs of living.
I would argue that this is because areas with higher GDP per capita create more economic value meaning that the people who live in that area are likely more educated and work high paying specialized jobs.
If people have higher disposable incomes on average then producers can charge more for equivalent goods and services since people would be willing to pay more. This is just one of many factors though. If you take housing for instance, supply can play a big role as well if you look at places like san francisco. There, it is common for someone to be earning six figures or more and the city has an issue with having a healthy supply for housing meaning you have many wealthy people competing for a limited number of homes. That is why it is the most expensive place to live in the US.
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