Information Processing

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The big dog

with 7 comments

This picture (via Barry Ritholtz) illustrates that the US is still the dominant economy in the world.

Note, though, that the growth rate differential between the US and China is currently around 7 percent per year (e.g., 10 vs 3). If that persists for another decade, China’s PPP GDP will exceed that of the US.

See here for a list of PPP adjusted GDPs by country.

70% of US GDP is consumer-related. One can expect significant consequences abroad from any slowdown here — for example due to freezing of home equity lines of credit 😉

Written by infoproc

May 16, 2008 at 3:22 pm

7 Responses

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  1. So, looking at that graphic, is the DE GDP larger or smaller than the JP GDP? It’s an amazingly awful representation, as interpreting it correctly requires knowledge of the individual state GDPs!


    May 17, 2008 at 3:56 am

  2. You are right — that’s why I linked to the individual country numbers!


    May 17, 2008 at 4:16 am

  3. Why bother with PPP estimates? They are opinions, everybody has one.


    May 17, 2008 at 8:51 am

  4. Would you prefer to use artificially maintained exchange rates? How else to convert a yuan economy into dollars?


    May 17, 2008 at 3:33 pm

  5. I’d rather use the current exchange rate – if you don’t like it, just wait!


    May 17, 2008 at 5:30 pm

  6. If you use instantaneous exchange rates you can have almost discontinuous changes in relative sizes of economies. Just look at USD vs mark or yen after the Plaza accord. Did the US economy actually shrink relative to the others? Or was the exchange rate just out of whack? PPP is designed to correct this problem. It’s not completely precise, but probably yields the best rough guide to relative GDPs.


    May 18, 2008 at 4:51 am

  7. No reason not to recognise discontinuity. If someone inherited millions, you wouldn’t smooth out the step function in his wealth.
    Incidentally, the dollar exchange rates were already declining several months before the Plaza accord.


    May 18, 2008 at 8:17 am

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