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Impearls: Economies & Areas I - Is California really the world’s fifth largest economy?

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Earthdate 2002-11-08

Is California really the world's fifth largest economy?

Most Californians, at least those with a TV set, have seen Gov. Gray Davis this election season repeat his assertion in a campaign ad that during his tenure in office he has moved California's economy “from seventh largest to fifth largest” in the world.  Not only the governor, but two other candidates for California office (Peter Miguel Camejo of the Green Party, candidate for Governor, and Jeanne-Marie Rosenmeier, also of the Green Party, candidate for State Treasurer) picked up this refrain and presented similar statements in their portion of the state's Official Voter Information Guide.

Like other residents of California, I've heard this sort of assertion about the scale of California's economy over the last several years.  Lately my curiosity has been quirked to investigate whether it's really true.

For some time I had no reference to the source or assumptions behind such statements, and when I checked using sources available to me (various U.S. bureaus' web sites), I got different results.  Glenn Reynolds the Instapundit ultimately provided a key pointer to an article including sufficient information that one could figure out what's going on.

It turns out that Gray Davis's advisors' list of the world's largest economies somehow doesn't include two of the very largest: China and India!  When those countries are properly included amongst the world's top economies, California drops to what is probably eighth place — with a relatively easy shot at seventh or sixth position, to be sure — but certainly not fifth (at least for the time being), as that would involve bypassing Germany, whose economy is half-again the size of California's.

Discussion.  Following a link from Instapundit, I found an article “French have snatched Davis' bragging rights,” by John Wildermuth in the San Francisco Chronicle (September 20, 2002), which reveals the source for this story — a group called the Los Angeles Economic Development Corporation.  I checked LAEDC's web site, but haven't located the report referred to in the article; perhaps they haven't posted it.  Meanwhile, however, Wildermuth's article contains enough information to disclose what kind of “largest economy” is being talked about here.

Wildermuth notes, “The difference in gross product isn't much — $1.310 trillion for France to $1.309 trillion for California.”  Referring to the CIA's 2001 World Factbook for France's “GDP” gives us $1.448 trillion (in an estimate for the year 2000) for the country, whereas the U.S. (Department of Commerce's) Bureau of Economic Analysis reveals some $1.344,623 trillion for California's “Gross State Product” (also a year 2000 estimate).  All these numbers lie in the same ballpark, so it's clearly not some oddball concept of “largest economy” (per capita, or whatever) that's being discussed in Wildermuth's SF Chronicle article by the LAEDC, but pretty much the usual Gross Domestic Product (GDP) that we all know and love.

Which makes it all the odder when one reads further in Wildermuth's article a list of the top four world economies, which supposedly have bumped both California and France down to competing for fifth place.  As Wildermuth put it (apparently from the mouth of LAEDC economist Jack Kyser):  “The top four economies are the United States, Japan, Germany and the United Kingdom, successively.”

This is meaty enough data that one can compare its veracity directly with U.S. Bureau of Economic Analysis figures and the CIA's World Factbook.  It turns out this is a list of the top four economies only if one considers a somewhat restricted set of countries, such as the G8.

Following is the ranking of the world's largest economies derived from Wildermuth's article:

Table 1.  Top Nations/States of the World ranked by GDP
(according to Los Angeles Economic Development Corporation)

Rank State
1 United States
2 Japan
3 Germany
4 U.K.
5 France
6 California

To compare with the above, following is a list I've prepared of all the world's economies (including U.S. states amongst the nations) having GDP's greater than half a trillion U.S. dollars.  Population figures for nations derive from CIA 2001 Factbook (the latest available) estimates of population as of July 2001.  For U.S. states, population numbers are obtained from current U.S. Census Bureau estimates which refer to July 1, 2001.  GDP figures for nations were obtained from CIA 2001 Factbook estimates with regard to the year 2000.  U.S. states' GDP figures are derived from current U.S. Department of Commerce's Bureau of Economic Analysis “Gross State Product” estimates for each state, also specific to the year 2000.

Table 2.  Top Nations/States of the World ranked by GDP
(according to the CIA's 2001 World Factbook)

Rank State Area (km2) Population (106) GDP (1012 US$)
1 United States 9,629,091 284.796,887 9.820,7
2 China 9,596,960 1,273.111,290 4.5
3 Japan 377,835 126.771,662 3.15
4 India 3,287,590 1,029.991,145 2.2
5 Germany 356,973 83.029,536 1.936
6 France 547,030 59.551,227 1.448
7 U.K. 244,820 59.647,790 1.36
8 California 411,049 34.501,130 1.344,623
9 Italy 301,230 57.679,825 1.273
10 Brazil 8,511,965 174.468,575 1.13
11 Russia 17,075,200 145.470,197 1.12
12 Mexico 1,972,550 101.879,171 0.915
13 New York 127,190 19.011,378 0.799,202
14 Canada 9,976,140 31.592,805 0.774,7
15 South Korea 98,480 47.904,370 0.764,6
16 Texas 691,030 21.325,018 0.742,274
17 Spain 504,782 40.037,995 0.720,8
18 Indonesia 1,919,440 228.437,870 0.654

Considering Table 2 above, clearly there is a group of countries/states which all have GDP's in the relatively small monetary range of $1.1 to $1.5 trillion (including France, the U.K., the U.S. state of California, Italy, Brazil, and Russia), within which GDP range some jostling and moving about as countries' economic pictures change is to be expected.  Thus, one can readily imagine California relatively easily moving past the U.K. and France, or the reverse — or Russia moving past Brazil and Italy, say — as economic trends ebb and flow.  This sounds so far very much like the situation (the reversal in places between France and California) described in Wildermuth's SF Chronicle article — except for the discrepancy in the total list of countries included in the top x.  (Continued below at the Conclusion.)

Changes since 2000 Factbook.  To venture on something of an aside, I've been ranking countries like this using the CIA's World Factbook over the past year.  Several changes within the CIA Factbook during that period of time are worth note.

Russia:  Russia has rocketed up, in the CIA's estimation, from a GDP shown in last year's 2000 Factbook (1999 estimate) of $620 billion (bracketing Russia with South Korea and Indonesia), up to the present  (2001 Factbook, year 2000) estimate of $1.12 trillion for the country's GDP.  Now Russia's neighbors are Brazil and Mexico, giving it a fighting chance soon of bypassing Italy, California, the U.K. and France!  This change for Russia from the 2000 to 2001 Factbooks reflects an 80.6% GDP increase in only one year!  The present 2001 Factbook also, however, indicates a mere 6.3% in real growth rate for Russia's GDP.  From the discrepancy, I presume this means the CIA has merely revised their estimate of where Russia was all along, though I really don't know how they resolve it.

The 2001 Factbook does describe a likely reason for Russia's dramatic ascent in GDP during the 2000 to 2001 time frame:  “Russia remains heavily dependent on exports of commodities, particularly oil, natural gas, metals, and timber, which account for over 80% of exports, leaving the country vulnerable to swings in world prices.”  Thus, when oil prices rise, as they have in the past couple of years, Russia booms.

India:  The other country to watch with regard to changes in the CIA's GDP rankings over the past year is India.  Shown with a GDP of $1.805 trillion in last year's 2000 Factbook (1999 estimate), India has moved sharply up in this year's 2001 Factbook to a (year 2000 estimate) GDP of $2.2 trillion — marching India smartly past Germany (at $1.936 trillion) into fourth place in the overall GDP rank of nations.

Conclusion.  The set of countries used by the LAEDC in its report is too restrictive: China and India, with GDP's of $4.5 and $2.2 trillion respectively, should certainly be included in the list.  As a result, California actually belongs in the vicinity of seventh to eighth place (depending on how France and Britain stack up at the moment), rather than fifth or sixth place.

According to the list of top countries provided in Wildermuth's SF Chronicle article (see Table 1), Britain (the U.K.) is presently ahead of France in GDP, unlike the CIA 2001 Factbook-derived Table 2 above.  Assuming Wildemuth's (i.e., the LAEDC's) placement of these countries is correct, if one thereupon introduces China and India into their proper locations (per Table 2), this would put France in seventh place in the global GDP sweepstakes, leaving California once again trailing in eighth place.

Considering the high-powered countries that are in the competition for first through eighth positions, California need not feel too badly, I believe, for showing up in eighth place — even before one notices that the state accomplishes its more than $1.3 trillion economy with a population of a mere 34 million!  In Table 2, for example, compare that lofty performance with the populations of all countries in the GDP rankings nearby.

UPDATE:  George Huang, economist at the Los Angeles County Economic Development Corporation (LAEDC), responded to the above article with this e-mail dated 2002-11-12 18:02 UT.

UPDATE 2:  Table 2 has been updated here from the CIA's 2002 World Factbook to reflect 2001 economic and 2002 population data.

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