Factoids: Looking at GDPs in the World

    Here's something for both my classes this term. The four graphs below display information about World GDP and the GDPs of 8 large nations (the US, European Union, China, Japan, China, Brazil, Russia and India). GDP is gross domestic product and it measures the final value of all goods and services produced in a country. Thus, it is one way to measure the size of an economy.

    The first graph below displays the total GDP of the world (in red) and the GDP of the United States (in blue) as reported by the World Bank.

     In 2012, world GDP stood at $72.4 trillion and US GDP was $16.2 trillion. What you should notice in the graph is that world GDP has been growing at a faster rate since 2002 than the US (7.6%/year for the world vs 4% for the US).  You will also notice that the world had two flat spots in GDP growth from 1981 to 1985 and 1993 to 2001 (albeit with a little step up in the middle). Finally, you will notice that the world economy took a big hit after the 2007-2008 Banking Crisis. Where the US economy shrunk by 2.1% from 2008 to 2009, the world economy as a whole shrunk by 5.1% in the same year.

     The next graphs displays the GDPs of the four largest economies in the world: the US, EU, Japan, and China. Though the European Union is not a nation, and did not technically exist prior to November 1, 1993, I like to think of it as economic actor in the world. Note that in the graph below, US GDP is again represented by the blue line, which allows you to put these nations in perspective to the previous graph.

     What we see in the graph above is that the US and EU nations (the red line) have always been roughly equal in terms of GDP. Of course, the EU's GDP appears to fluctuate wildly but that is a function of the changes undergone by the former communist nations that joined the EU in 2004 (keep in mind that the EU data represents the combined GDP of all current EU members even before they joined the EU and, indeed, before the EU existed).  What is perhaps more interesting to note is the havoc that the Banking Crisis and then the Euro Crisis has played on EU GDP (as evidenced by the downs and ups in the red line since 2008).

     The next thing to look at is the green line representing Japan's GDP. You can see that, in the mid 1980s, Japanese GDP started gaining on US GDP. Actually, when you take inflation into account (which this data does not do), the Japanese economy was growing faster than that of the US in the 1970s.  This was the era of US paranoia about Japan displacing the US as the largest economy in the world. People worried that Japan was using unfair trade practices to grow at the expense of US trade and employment. The Japanese were also buying US government debt, private companies and real estate (notably Rockefeller Center in NY). There was a great concern (very similar to concern voiced today about China) that the US would become subservient to Japan as a result. Nothing captured the feeling of that time better than the artwork used on the 1987 edition of Paul Kennedy's book The Rise and Fall of Great Powers shown below:

     However, things did not work out that way at all.You can see from the green line that Japanese GDP peaked in 1995 at $5.33 trillion and then dropped to $3.91 in 1998 (ouch!). Japan would not surpass its 1995 peak in GDP until 2010. Though Japan's economy languished for closer to 15 years, this what is often referred to as a Lost Decade of economic growth.

     Then there is China whose GDP is represented by the purple line in the graph above. Clearly, China has had an astounding amount of economic growth. They have surpassed Japan in GDP and are gaining on the US and EU as Japan was in the 1980s. However, unlike Japan, China has a much larger population than the US and EU. Therefore, one would expect their economy to eventually surpass the US and EU in size. The question is will they continue on a path of sustained growth or will they experience a setback similar to Japan's. That's a deeper question for another time (which even then cannot be answered with certainty) but it is a possibility worth keeping in mind.

   In 2001, Jim O'Neil coined the term BRIC to refer to Brazil, Russia, China, and India as a set nations whose economic growth might shift some economic power away from the existing advanced economies. The graph below shows the GDP of the BRIC nations fro 1989 (the first year in which the World Bank has data n the Russia Federation's GDP) through 2012.

  The main thing you can see in the graph above is that China has decisively left Brazil, Russia and India in the dust. Indeed, the combined 2012 GDPs of the other three nations amount to only $6.1 trillion, $2.13 trillion short of China's $8.23 trillion GDP. So much for the BRICs. There is only China.

     Another thing worth pointing out here is the Lost Decade that Brazil (the purple line) experienced from 1997 to 2005. Also, you might notice that Russia's GDP (green line) has not done so well since 2008. Juts note these things for now.

   The final graph shows the share of world GDP accounted for by each of the big four's GDPs.  That is to say, it displays the GDP of the US, EU, China and Japan as a percentage of world GDP. This is an important statistic because a nations ability to effect the world economy is roughly proportional to the size of its economy relative to that of the rest of the world.

   What we see in this graph is that the US starts out with 38% of the world's GDP in 1960. This percentage declines a little bit in the 1960s  before dropping rapidly in the 1970s to end up at just below 26% in 1980. Then the world economy hits that 1981-1985 flat spot in growth mentioned in conjunction with the first graph presented above and the US percentage of world GDP climbs back up to above 34% in 1985. Then the world starts growing faster again, and the US percentage drops back down to below 26% in 1995 (basically in the middle of the 1993-2001 flat spot in world economic growth). From this point, the US percentage climbs to above 32% in 2001-2002 before starting to decline to its present point at around 22%.

     What one might take from this is a picture of the US having a diminished but roughly stable (at least within the 25-35% range) percentage of world GDP from 1970 to 2000. This percentage (and the influence it gives the US) has stated to decline to new lows since 2002 and is likely to continue in the future. The other point to keep in mind is that this is not due to a decline in the US economy as much as it has to do with strong growth in the world.

     Of course, a big part of that growth comes from China's rapidly rising GDP. China is still a minor player with only about 11% of the world economy, which is far below Japan's 1995 peak at almost 18% of world GDP. Still, China is rising in relative size and, if it surpasses the US in GDP it will necessarily have a larger percentage of the world's GDP.

     But what about the red line representing the EU whose GDP represents 23% of the world GDP . To be sure the EU didn't exist before 1993 and only existed in its current form (i,e., with all its current members) in 2007. And, yes, in its current form it isn't quite like a nation (for instance the entire EU does not use the Euro). But it is potentially a powerful player in the world economy that both China and the US may need to accommodate in the future.

    Indeed, it is probably the case that no one nation will ever be as large as the US was relative to the world economy in 1960s, or for that matter, from 1970 to 2000. Managing the world economy will probably require coordination between the US, EU and China (and perhaps India if it grows in proportion to it very large population).