Wednesday, September 3, 2008

China and India GDP Sizes Revisited

China and India GDP Sizes Revisited
Filed under: General
Posted by: site admin @ 9:06 am

The World Bank reestimates the GDP of some 146 countries on the basis of a new set of data of Purchasing Power Parity collected by the World Bank, Eurostat and the Organization for Economic Cooperation and Development. According to this study, China and India and many other countries are not as large as they are reckoned to be. Inflation in India and China has reduced the purchasing power of the Yuan and the Rupee. Economists have used the “Big Mac Index” as a convenient method to figure out the purchasing power of the respective currencies. If inflation eats into the Yuan or the Rupee, their buying power goes down.

On this purchasing power parity (PPP) basis, China’s share in world trade has gone down from 14 to 9.7 percent and India’s down from 6 to 4.3 percent. Instead of a GDP of $10 T it is only $6 T, a 40 percent downsize. Similarly, India’s GDP goes down from $4.5 T to $3.2 T. Needless to emphasize that it is sensible to use these estimates as mere indicators of the broad dimensions of the GDP, and not put too much faith in them.

When the GDP of the two countries is measured in terms of market exchange rates rather than PPP, China’s share in World GDP comes down from 9 to 5 percent and India’s from 4 to 2 percent.

In view of the new light on GDP sizes, we too will soon revisit the ICA Table of Comparison of Fundamentals.

Dr. S.V. Char
Editor of Academic Resources

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