With reference to Figure 1, Extract A and your own economic knowledge, discuss the limitations of using Gross National Income (GNI) per capita data to compare living standards between the United States and rapidly growing Latin American economies.

Figure 1: Annual percentage change in Real Gross National Income (GNI) per capita, 2021–2024

Extract A

Beyond the Balance Sheet: Assessing Welfare in the Americas

The economic trajectory of the United States has shown steady but uneven post-pandemic consolidation. However, standard national accounts often fail to capture the distribution of these gains, with critics pointing out that median household wealth has stagnated despite rising top-tier incomes. Economists emphasize that a single aggregate figure cannot reflect the qualitative dimensions of development, such as environmental quality, health outcomes, and the unpaid care economy.

When comparing the United States to Latin American economies, using Gross National Income (GNI) per capita presents significant challenges. First, the size of the informal sector varies dramatically: the informal economy is estimated to account for roughly 40% of GDP in several Latin American nations, compared to less than 8% in the US. Second, GNI includes net primary income from abroad, meaning that large remittance inflows from migrant workers abroad heavily influence Latin American GNI, yet these flows may not translate directly into structural domestic public investment or improved local public services. Additionally, rapid urbanization and industrial expansion in Latin America have led to severe environmental degradation and respiratory health crises in major cities, representing unpriced negative externalities that diminish true living standards.