As the World Turns

Several posts ago, I presented some numbers by Angus Maddison on the evolution of global GDP output shares over the period 1500 to 2001 which showed that Asia’s share of world GDP declined from 1500 to about the mid 20^th century but has since been rising.  I decided to try and do a bit of an update using the IMF’s World Economic Outlook 2012 Data Tables which provide GDP in US purchasing power parity dollars up to 2011 and then estimates after that to the year 2017.  The results are both simple and complex.

If you look at Figure I, I've divided world GDP into three groupings: Asian countries (including Japan), the “West” defined as the United States, the European Union and the British Settler offshoots of Canada, Australia and New Zealand and then “Everyone Else”.  According to these figures, in 2000, Asian countries – whether industrialized or developing – together accounted for about 27 percent of the world’s output.  The “West” accounted for 52 percent while “Everyone Else” produced about 22 percent.  By 2011, the share of the Asian countries had increased to 35 percent while that of the “West” was down to 42 percent.  Meanwhile, that of “Everyone Else” had increased to 23 percent.  Based on the estimates of GDP through to 2017, eventually, the Asian countries will account for 39 percent of world output, the “West” 38 percent and “Everyone Else” 23 percent.  This threefold division suggests a much more equal balance between the world shares of GDP though the “West” (as defined here) will still have a much higher per capita GDP given that while accounting for 38 percent of GDP, it will likely account for less than 10 percent of the world’s population.

 

A more nuanced picture emerges when the groupings are broken up a little further.  The picture is now a bit more complex.  Over the period 2000 to 2017, China’s share of world output will grow from 7 to 18 percent and will likely surpass that of the United States in that year.  The US share of world output will fall from 24 percent in 2000 to about 18 percent in 2017.  The European Union’s decline will be somewhat steeper, going from 25 percent in 2000 to 17 percent by 2017.  The Asian ascent is not uniform.  Japan’s share of world output will actually shrink from 8 percent to 5 percent.  As for Latin America and the Caribbean, the Middle East and Africa and Russia, well their output shares will stay pretty much constant over this entire period. What about Canada, Australia and New Zealand?  Their combined shares of world output are expected to decline from about 4 percent in 2000 to 3 percent by 2017. In fact, their combined economies will be about the same as Russia.

There seems to be a rebalancing of world GDP underway in the early 21st century and a more multipolar world is a good thing. I'm not sure the important question is whether the 'West" is in decline or Asia in ascent.  The more interesting question is perhaps why the output shares of the rest of the world outside of Asia and the "West" are not changing very much.

Comments

[Nick Rowe]

One puzzle for me is Latin America. On a priori(?) grounds, it would seem to make about as much sense to include Latin America as part of "the West" as it would be to include US, Canada, Australia and New Zealand. The former were founded by one group of European settlers, the latter by another group of European settlers.

Russia is a similar puzzle. You could include it in the West, as part of Europe. Or as Asia, but Asia settled by Europeans.

What I'm trying to get at is: to what extent do we categorise countries by "peeking" at the data. If Latin America had grown just like US and Canada, would we have included it as part of "the West"?

I don't have any answers to that puzzle. I expect it depends on what questions we are asking.

[Livio Di Matteo]

Those are good points Nick. Classifying the data is important. I guess when we refer the the "West" we usually mean the more highly developed and richer market economies that predominated in the 20th century. That would exclude Russia and Latin America but would actually also include Japan - which I've put in Asia. Another breakdown of countries would separate out the "Anglosphere" from the West - the highly developed countries that are largely English speaking. However, then we would have to decide what to do with the UK - is it now more European than it used to be or should it still be put with the US, Canada, Australia and New Zealand (and maybe South Africa?). Should we then include Spain with Latin America - a "Hispanosphere"? Not sure.

[david]

Colonies of the northern European settlers in the wrong regions still descended into basketcases - this includes the odd English-speaking parts of "Latin" America - and colonies of the southern Europeans in the right regions turned out pretty much similar. Macau is not significantly different from Hong Kong, save for being much smaller.

I think there's some endogeneity of classification here too. If Indonesia and Malaysia had turned out as badly as foreign-policy experts thought they would, back in the 1950s, today we'd say it's obviously because they are part of the broad swathe of Muslim states from Timor to Morocco. But they did't, so we draw the line somewhere in the Indian subcontinent instead. The choice of how to classify Asia is pretty driven by their economic performance as-is.