What is the Largest Economy?

Ok, pop quiz: What’s the world’s largest economy, as defined by GDP?

The answer is “it depends on who you ask.”* If you want internationally comparable GDP data, there are three main places to look: The Penn World Tables, The World Bank, and Angus Maddison’s database. According to inequality researcher Branko Milanovic, right now, the last database puts China in the lead, while the first two give it to the US. New revisions of the Penn tables put them closer to the US, but not all the way there. But the Penn World Tables are constantly in flux, and Milanovic predicts that the next round of revisions might put China in the lead. Here’s how he put it, in confusing reverse order because Twitter:

Screen Shot 2013-07-06 at 10.17.40 AM

The range of the three is quite large: from China being 10% higher than the US to 25% lower. As Morten Jerven has shown, this problem (of large variation between the different data sets) is pervasive, and especially problematic for African countries.

* It also depends on *how* you ask (which PPP data you use, etc.), which amounts to something very similar.

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3 Comments

  1. JeffL

     /  July 11, 2013

    Dan,

    How is it possible that the World Bank puts the U.S. at twice China’s GDP (see link below), but another measure puts China ahead?

    http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&hl=en&dl=en&idim=country:USA:CHN:JPN)

    Also, totally random, but I think you mind find something interesting. I was recently reading up on the Higgs Field and the Higgs Boson. As I was reading about Peter Higgs’ contribution to the discovery, I was struck by his story about how his concept of the Higgs field was introduced in the academic literature. As so often happens, his paper was rejected out of hand, largely because it posited an ethereal field spread evenly throughout the universe, when the long-prevailing wisdom was that some kind of new particle was required to “fix” various troublesome irregularities in equations.

    The journal he submitted to automatically rejected his idea saying it was “of no obvious relevance to physics”. Now what strikes me is not that really innovative ideas get rejected by journals, or that a mediator in the science field is often needed to champion an idea, what strikes me is the question of how we fix this kind of problem. As sociologists, we know that the problem exists. We know that, right now, some journal reviewer is completely dismissing a young researcher’s theory that is a damn good way of explaining the world. Should we introduce an award for “worst call” in journal reviewing? An award for rejecting a new idea that obviously was important and good? Something that would keep reviewers on their toes?

    • Quick response from the archives: You have to look at the GDP/GNI adjusted for purchasing power parity but not per capita to see the US and China as “close.” So, straight-up GDP I think is done at exchange rates. GDP/capita is obviously not the right question here (since we are interested in “size of the economy” not “standard of living”). Whether or not exchange-rate or PPP is the right measure for “size of the economy” depends on what you think you are measuring, but in any rate, if you look at the WDI series for “Gross National Income in PPP dollars”, you’ll see the US and China are “closer” , at least closer than the US being double (instead, the US is about a quarter ahead, as Milanovic said). In this case, it’s the wildly different PPP estimates that are doing a lot of the work of producing uncertainty around the largest economy.

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