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GDP by Country as Measured by Three Methods

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Gross domestic product (GDP) allows you to compare the economies of the world’s nations. It measures everything produced by people within a given country, whether they are citizens of that country or not.

The International Monetary Fund has measured the GDP of all countries in the world. As of 2018, the top 10 countries by GDP are:

  1. United States: $20.4 trillion
  2. China: $14.0 trillion
  3. Japan: $5.1 trillion
  4. Germany: $4.2 trillion
  5. United Kingdom: $2.9 trillion
  6. France: $2.9 trillion
  7. India: $2.8 trillion
  8. Italy: $2.1 trillion
  9. Brazil: $2.1 trillion
  10. Canada: $1.7 trillion1

Combined, these countries produce 67% of the world’s total GDP of $87.5 trillion.

The European Union is a trade and monetary union, not a country. But if it were, it would be the second largest. Its GDP is $19.6 trillion.2

If the top three economies — United States, EU, and China — were combined, their GDP would be $54 trillion. That’s 62% of the world’s total output. Their GDP reveals that what they do has an outsized impact on the global economy.

Three Ways to Measure GDP by Country

There are three ways to compare GDP between countries. The one you use depends on your purpose and how exchange rates and population would affect it.

Here’s a summary of the three ways, how they are calculated, and when you would use them.

Official Exchange Rate

The IMF uses the most commonly agreed-upon measure, the official exchange rate. The country’s government or central bank sets this rate.3 It tells you how much the bank will give you in exchange for one unit of your country’s currency.

An official exchange rate must be a fixed exchange rate. The values don’t change according to the market’s whim. Most central banks fix their currency’s rate to either the U.S. dollar or the currencies of its primary trading partners.45

For example, China has traditionally maintained a fixed rate for the yuan, its national currency. China pegged the yuan to a 2% range against a basket of currencies that include the U.S. dollar. This lets China control its labor and manufacturing costs. That makes the prices of China’s exports less expensive, so anything “Made in China” is more competitive in the global marketplace.6

Because China has a low exchange rate, the OER method results in a low figure for China’s economic output.7

The good news for China’s residents is that it also makes the cost of living lower. In June 2018, a Big Mac only cost $3.10 in China, while it cost $5.51 in the United States. The magazine “The Economist” created the Big Mac Index to determine where currencies are at their correct level according to purchasing power parity. The Index says the yuan was undervalued by 44%.8

Use the OER method when you want to compare two emerging market countries to each other, or two developed economies to each other. You can also use it to compare the country’s economic output over time, as long as its exchange rate hasn’t changed dramatically.

In addition to the IMF, the CIA World Factbook provides the OER method. It lists every country and its GDP by alphabetical order.9 That’s helpful when you already know which country you want to investigate.

Purchasing Power Parity

Purchasing power parity allows you to make more accurate comparisons of the economies of two countries. It compensates for exchange rates changes over time. It also accounts for government manipulation of exchange rates.

GDP using PPP is calculated by determining what each item purchased in a country would cost if it were sold in the United States. Those costs are then added up for the total goods and services produced in that country in the given year.

PPP can be very subjective. Everything produced in a country must be assigned a U.S. dollar value. That can be especially difficult if it’s something that’s not produced or even sold in the United States, such as a cart pulled by oxen.10 

The PPP method is most important when comparing emerging market countries to developed market countries. The PPP method gives a more accurate reflection of the power of China’s economy.11

The IMF lays out GDP by Country using PPP.12

In 2018, China’s economic output using the PPP method was $25.2 trillion.13 If the PPP method is used, China replaces the United States as the world’s largest economy.

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