Thinking in Terms of Economic Regions, Not Countries

Before we get too far, I want to take another look at the table in Figure 1, in the previous column, in order to encourage you make a change in your thinking. Instead of considering only individual countries, I want you to start thinking in terms of separate economic regions.

The reason is that five of the countries in this list are actually part of a larger, unified economy. Specifically, Germany, France, United Kingdom, Italy, and Spain belong to the European Union, or EU, an economic and political union of 28 different countries.

Although we can’t say that the European Union is a country in its own right, we do have to acknowledge that it has a large, stable economy of its own, comparable to that of a large country. In fact, the EU has its own currency; its own central bank; and its own set of financial laws and regulations. Thus, for practical purposes, it makes sense for us to stop thinking about the individual European counties and to consider the EU as an entity unto itself.

So, from now on, to make our comparisons more useful and realistic, I am going to leave out the separate European countries and consider the EU as a whole.

The 2012 GDP for the EU was $16,641 trillion. Rewriting the data from Figure 1, accordingly, gives us the information in Figure 2 below. Notice that even though we have covered the same parts of the world, the number of entries in our list has shrunk from 15 to 11. Even more important, we can see that the single largest economy in the world is that of the European Union, which is actually 6 percent larger than the U.S. economy.

The first thing that is obvious is that the economy of the world is huge compared to the economy of any one country. In fact, the GDP of the world, $71.7 trillion, is more than 4.3 times the size of the world’s most productive economy, the European Union, which has a GDP of $16.6 trillion.

Still, when we compare the various economic regions, we can see that there is a significant disparity. The two largest regions, the EU and the U.S., have a total GDP of $32.3 trillion, which represents over 45 percent of the world economy:

$32.3 / $71.7 = 45.1 percent

Throwing in China and Japan (another $14.2 trillion) increases the total GDP to $46.5 trillion, about 65 percent of the world economy:

$46.5 / $71.7 = 64.9 percent

It is certainly a startling fact that the two largest Western economies (Europe and the United States) account for almost half of all the goods and services produced in the world. However, as we will discuss next time, the EU and the U.S. together, contain only 9 percent of the world’s land mass, and are home to only 12 percent of the world’s population. These are important observations that we will investigate next.

This is one of a multi-part series on Understanding Gross Domestic Product appearing biweekly at independent.com. Next time: “GDP and the Physical Size of a Region.”

Harley Hahn has a degree in mathematics and computer science from the University of Waterloo in Canada, a graduate degree in Computer Science from UC San Diego, and has studied medicine at the University of Toronto Medical School. Hahn is a writer, philosopher, humorist, and computer expert. In all, he has written 30 books that have sold more than 2 million copies, and his work is archived by the Special Collections Department of the UC Santa Barbara library. Hahn has written widely about money and economics, and is also an accomplished abstract artist and a skilled musician. See more at www.harley.com.