just as an aside, though, the top 5 in Europe and Asia aren't *that* dominant. Saudi Arabia trails South Korea by less than 200 million. Spain trails Italy by about 500 million.
being 2020. But hey, they’re just hiding their weaknesses as of now. Just saying.
These are just the Asian examples! Europe's numbers are also way off, with Russia being listed ahead of the UK and France despite their much higher GDPs in real life.
The WorldBank is my source for all of this. I suggest using it instead of whatever website where these bizarre figures were published.
This means that usually the numbers for "poorer" countries are higher. This is trying to reflect, especially if used as "per capita", how big the gaps between countries is when it comes to buying stuff. Not the best form of measurement but I like the idea
It's a better measure, in my opinion. So how does it work?
Let's say there are two countries whose economy consists solely of producing apples. Both countries produce exactly one million apples, alike in every way. Which country has the bigger economy?
According to PPP, both countries have the same size economy since they both make the same number of apples. But according to your measure, nominal GDP, it depends on how much the currencies of each country are worth.
To me, PPP makes more sense intuitively. It also seems to do other things better as well. For instance, it's more consistent year over year, and it is more strongly correlated with life expectancy.
Or, am I thinking about this wrong?
PPP is a good tool when looking at GDP per capita as it better represents the purchasing power of the average citizen but in the context of comparing international economies it makes no sense.
The fact the say, the Chinese Yen has relatively more purchasing power in China than the dollar does in the USA doesn't make Yen anymore valuable to a third party country. Similarly, it doesn't make China's annual value creation any higher.
Did you know that, from May 2021 to October 2022, the Euro declined by 25% vs. the dollar? If we looked at nominal GDP this would mean that the economies of Europe absolutely cratered by 25%. That is Great Depression levels.
Now clearly Europe was not in a depression. But that's the result we get if we look at nominal GDP.
I use PPP in part because of the absolutely wild swings in nominal GDP which are influenced by currency trading more than anything, and have little to do with the real economy.
PPP is more consistent year to year and correlates more strongly with other markers such as life expectancy.
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