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Impearls: 2003-01-19 Archive

Earthdate 2003-01-24

15 of the 50 largest Economies of the World are U.S. States (or the U.S. itself)

Wouldn't you know it, but no sooner had Eugene Volokh of the Volokh Conspiracy linked to Impearls' table of the “largest economies of the world,” (which might be titled as above, by the way) — and just after a couple of interesting comments arrived — our Internet connection/phone line went down for two days!

In the meantime, Eugene posted a couple of updates to his initial posting, here and here (or just scroll up).  In his first post, Volokh wrote:

Impearls has a really cool table, drawn from multiple sources; I can't vouch for the accuracy, but it seems right, and very interesting.  It also points out some interesting controversies about the actual sizes of various economies, especially China's and India's — the CIA Factbook seems to give a different result from the one that Impearls says is generally accepted by economists.

Oh, and according to one source that Impearls cites as being quite reliable, Los Angeles County's GDP is right above the 16th largest national GDP — which is Russia, the main heir of the nation from which my family moved to L.A. County.

Russia is another of those countries whose CIA Factbook-stated GDP differs substantially (by a factor of four in this case) from that generally used by economists.  As we now know (see below), this is due to the “Purchasing Power Parity” [PPP] index that the CIA uses rather than exchange rates for its GDP estimations.  According to the CIA Factbook PPP-derived figure, Russia's GDP ($1.2 trillion US$) actually lies up near that of California (taken as a whole) or countries like Brazil and Italy.  Taking LAEDC's (Los Angeles Economic Development Corporation) more conventional (exchange rate) GDP figure for Russia, on the other hand ($310 billion US$), Russia's economic output hovers near that of nations on the scale of Taiwan and the Netherlands — nations small in geographical extent, and relatively small in population as well.

The latter GDP figure for Russia, in fact, lies on a par with U.S. states Massachusetts and New Jersey.  It's worthy of note, I think, that these two American states are just about the same size (around 20,000 km2) as what has been called “that sh--ty little country” (sorry! I disavow it!), Israel.  Massachusetts, in particular, is a virtual twin of Israel in area and population.  (Israel itself doesn't show up in the top economies table as its GDP — by the Factbook, $119 billion US$ in 2001 — places it below the table's $200 billion cut-off.)

My point, which just reinforces what Eugene was saying above, is that a country need not be large in area, nor very large in population, to have a vibrant, influential economy; and even without a productive economy, a small country can potentially (especially in these days of weapons of mass destruction) have an effective and dangerous military.  Thus, with an (exchange rate) economy no larger than that of the Netherlands or the state of New Jersey, Russia still fields thousands of nuclear weapons.  Iraq, with a much smaller economy, still constricted by UN sanctions ($59 billion US$ in 2001, according to the CIA Factbook), is attempting to do less, but still enough to potentially kill millions of human beings.  Note that North Korea manages an effective WMD program with an economy ($21.8 billion US$ in 2001) less than half the size of Iraq's present one.

Some of the impetus behind thoughtless and bigoted comments like the “sh--ty little” one results, I think, from a well known phenomenon in mental affairs, “Out of sight, out of mind.”  Countries the size of Israel are almost lost (say) on your average desktop globe; the tiny scale constricts visibility, and people tend to evict unseeable things from their minds as too trivial to be of concern.  This is a severe conceptualizing error.  “Small” nations (or states) need not be small in their consequences for the present or future.  (As an example, see Alexis de Tocqueville on the origins of American democracy in the little state of Connecticut and its neighbors, here.)

Interesting comments have come in from readers following the link from the Volokh Conspiracy.  I'd suspected the Conspiracy's high-powered readership would give my problem short shrift once it chanced being brought to their attention!

A writer from the U.S. Census Bureau (who also cc'ed Eugene in his reply) clears up the mystery:

Interesting post about international GDPs.  I thought I'd email to let you know that the difference between the CIA's numbers and LAEDC's isn't really so mysterious.

The reason the CIA figures differ from the LAEDC's, is that the CIA is converting from foreign currency to dollars using a “Purchasing Power Parity” (PPP) index, while the LAEDC is using exchange rates.  That's also the reason why the LAEDC and the CIA report the same numbers for the U.S.: because there's no need to convert U.S. GDP from a foreign currency into dollars.

For most purposes, the PPP numbers are preferable, so the CIA is reporting better numbers.  Two problems with exchange rates are that they are set by government fiat in some countries, and that they only reflect the price of tradeable goods.  But most of GDP isn't tradeable, for example, housing and cardiac surgery.  PPP numbers are an attempt to calculate the price of all goods in a country relative to U.S. prices.  If your goal is to use GDP per capita to compare the standard of living in different countries, the PPP numbers are the ones to use.  The exchange rate GDP numbers tell you how much the country could import (assuming the exchange rate is set by the market, anyway), but that's not a figure that I see any particular use for.

If you want to see the PPP and exchange rate numbers side by side on the same page, the World Bank has a table on the web:  [here].

Another reader commented along similar lines, but is worth quoting too for his slightly different information/slant on things:

Well, the explanation for the difference is that the CIA uses PPP-adjusted figures, while the OECD figures are based on official currency exchange rates.  In countries with relatively free movements of capital and goods, these would mostly be the same, but in many developing countries there is a substantial difference.  (So, for example, food and housing is a lot cheaper in dollar terms in Dehli than in LA.)  In places with substantial differences, there is likely to be a big black market in foreign currency.

PPP is Purchasing Power Parity, that is, adjusting the exchange rates according to what good actually cost in the country.

Which one matters more?  Hard to say.  If you're living in the country and looking at quality of life, then PPP matters more, since that mostly determines your standard of living.  If you're investing in a country, building a factory, exporting, or importing (legally), etc., then exchange rate matters, since that's what you pay and get paid to get goods and capital and equipment in and out.

The ratio of the PPP and exchange rate figures is usually about the exchange rate of the black market.

Once you look at OECD's PPP-adjusted figures, there is no discrepancy, so the CIA isn't measuring any underground economy (which by definition isn't measured).

CIA's explanation: [here] (see section on GDP methodology).

OECD figures: [here] (Compare GDP figures, PPP and exchange rate for Mexico, for instance).

I find this encouraging.  Since noticing the discrepancy between the CIA's and economists' GDPs, I'd carried something of a cloud in my mind about the reliability/usability of the CIA's GDP figures.  Now that we understand where it's coming from, they do seem to be relatively solid and usable data.  (The World Bank table cited by the first reader above is also very much worth locating; I'd been looking for a table like that!)

Ultimately, I agree with Eugene — this sort of table does provide a very interesting vehicle for comparison between the states and nations of the world.  Who says economics is the “dismal science”?

Impearls: 2003-01-19 Archive

Earthdate 2003-01-19

Largest economies of the world – Updated to 2001

UPDATE:  2003-02-04 18:00 UT:  This entire table has been updated and republished here.

To bring Impearls' earlier article on California's place in the world's economies up to date, following is an updated table, based on the CIA's recently released 2002 World Factbook, of all the world's economies (including U.S. states amongst the nations) having GDPs, during 2001, in excess of $200 billion U.S. dollars. 

Table 1.  Top Nations/States of the World ranked by GDP
(according to the CIA's 2002 World Factbook)

Rank State Area (km2) Pop. 2002-07 (106)
CIA 2002 Factbook
2001 GDP (1012 US$)
CIA 2002 Factbook
2001 GDP
1 United States 9,629,091 280.562,489   10.082   10.082
2 China 9,596,960 1,284.303,705     5.56     1.159
3 Japan 377,835 126.974,628     3.45     4.141
4 India 3,287,590 1,045.845,226     2.5     0.481
5 Germany 356,973 83.251,851     2.174     1.846
6 France 547,030 59.765,983     1.51     1.310
7 United Kingdom 244,820 59.778,002     1.47     1.424
8 Italy 301,230 57.715,625     1.402     1.089
9 California 411,049 34.501,130   1.344,623   1.309
10 Brazil 8,511,965 176.029,560     1.34     0.504
11 Russia 17,075,200 144.978,573     1.2     0.310
12 Mexico 1,972,550 103.400,165     0.920     0.618
13 Canada 9,976,140 31.902,268     0.875     0.694
14 South Korea 98,480 48.324            0.865     0.422
15 New York 127,190 19.011,378   0.799,202  
16 Spain 504,782 40.077,100     0.757     0.582
17 Texas 691,030 21.325,018   0.742,274  
18 Indonesia 1,919,440 231.328,092     0.687    
19 Florida 151,939 16.396,515   0.472,105  
20 Illinois 145,934 12.482,301   0.467,284  
21 Australia 7,686,850 19.546,792     0.465,9     0.357
22 Argentina 2,766,890 37.812,817     0.453     0.269
23 Turkey 780,580 67.308,928     0.443    
24 Iran 1,648,000 66.622,704     0.426    
25 Netherlands 41,532 16.067,754     0.413     0.380
26 South Africa 1,219,912 43.647,658     0.412    
27 Thailand 514,000 62.354,402     0.410    
28 Pennsylvania 117,348 12.287,150   0.403,985  
29 Taiwan 36,000 22.548,009     0.386     0.282
30 Ohio 107,044 11.373,541   0.372,640  
31 New Jersey 20,168 8.484,431   0.363,089  
32 Poland 312,685 38.625,478     0.339,6    
33 Philippines 300,000 84.525,639     0.335    
34 Michigan 151,586 9.990,817   0.325,384  
35 Pakistan 803,940 147.663,429     0.299    
36 Georgia 152,576 8.383,915   0.296,142  
37 Massachusetts 21,456 6.379,304   0.284,934  
38 North Carolina 136,412 8.186,268   0.281,741  
39 Belgium 30,528 10.274,595     0.267,7     0.230
40 Virginia 105,586 7.187,734   0.261,355  
41 Egypt 1,001,450 70.712,345     0.258    
42 Colombia 1,138,910 41.008,227     0.255    
43 Saudi Arabia 1,960,582 23.513,330     0.241    
44 Bangladesh 143,998 133.376,684     0.230    
45 Switzerland 41,290 7.301,994     0.226     0.247
46 Austria 83,858 8.169,929     0.220    
47 Washington 176,479 5.987,973   0.219,937  
48 Sweden 449,964 8.876,744     0.219     0.210
49 Ukraine 603,700 48.396,470     0.205    
50 Malaysia 329,750 22.662,365     0.200    


Key to the table.  Population figures for the nations were obtained from CIA 2002 World Factbook national population estimates with regard to July 2002 (2002-07).  The first “2001 GDP” column's data was obtained from 2002 World Factbook national GDP estimates for the year 2001.  The next “2001 GDP” column data was obtained (for nations and the state of California) from the Los Angeles Economic Development Corporation (LAEDC), who derived it from OECD and IMF figures.  See this link for LAEDC economist George Huang's letter describing LAEDC's procedure, and this for their table laying out the results.  According to LAEDC's Huang, these figures are what economists generally accept.

Neither the U.S. Census Bureau nor Bureau of Economic Analysis have yet released year 2001 population or Gross State Product figures for the individual states, so the previous year's data will continue to be used until more recent information becomes available.  For U.S. states, population figures were obtained from current U.S. Census Bureau estimates with regard to July 1, 2001 (2001-07-01) (see items noted † in the table).  GDP data (other than the LAEDC column) for U.S. states was derived from currently available Bureau of Economic Analysis “Gross State Product” figures with regard to the year 2000 (see items flagged ‡ in the table).

Changes since 2001 Factbook.  The most notable change since last year's Factbook is the continuing ascent, in the CIA's estimation, of China's economy.  Since the CIA's estimate of $4.5 trillion for China's economy in the year 2000, the CIA now purports to believe that the size of the Chinese economy, as of the year 2001, was 5.56 trillion US$ — an increase of over $1 trillion in just that one year, in sum over half the size of the U.S. economy.  Of course, China's sizable GDP, as well as that of India (whatever their actual size), are spread out over a much larger per capita than that of the U.S.

I also note that both LAEDC's table and the 2002 World Factbook both report a U.S. GDP of 10.082 trillion US$ for the year 2001.  That is indeed what they both report, and I have no explanation for the convergence, save coincidence.

Why are the CIA's estimates sometimes so different from economists?  I've seen no mention of this in the general press, but the CIA World Factbook's figures for the economies of several of the world's major economies — most notably India and China — are very much different (a factor of five-fold in the cases named) from those which (according to LAEDC economist George Huang, for example) are generally accepted by economists.

In the table above, notice how India is shown, in the LAEDC figures, with a GDP of $481 billion US$ for the year 2001; China, a GDP of $1.159 trillion over the same time period.  Contrariwise, according to the CIA's estimation in the 2002 World Factbook, India's GDP was actually $2.5 trillion US$ for the year 2001, while China's was an astounding $5.56 trillion!  Note that China's economy, according to the CIA, grew to that lofty figure by more than $1 trillion in annual GDP since just the previous year (it was $4.5 trillion during year 2000, according to the 2001 CIA Factbook).

If the CIA's estimations are correct, then both India and China substantially outrank California in GDP, which (together with jostling with countries such as France, the U.K., and Italy) places California in ninth place in the world during the year 2001.  Plugging in LAEDC's year 2001 GDP for California ($1.309 trillion), rather than using the BEA's year 2000 GDP for the state ($1.344,623 trillion), causes California to actually drop into tenth position, behind the U.S., China, Japan, India, Germany, France, the U.K., Italy, and Brazil.  Of course, ninth or tenth place in the international economic jamboree is not at all bad, when viewed in proper context as the performance of a population of a mere 34 million!

Probably the real story here, however, is why the CIA's assessment of several nations' economies, most notably India and China, is so much at variance with what economists generally accept.  I don't have the answer to that question.

UPDATE:  2003-01-24 18:15 UT:  Mystery solved!


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