In recent years, GDP has grown at much higher rates in emerging markets such as China and India than in Western industrialised countries. In the advanced economies, fears of being replaced are increasing. This may be true in the long term, but in the near future, industrialised nations of the West will remain those with the greatest economic power.
Distribution of global economic power in 2018
In 2017, global gross domestic product (GDP) was equivalent to just under 80 billion U.S. dollars. Twenty-six percent of this is attributable to American and Canadian GDP. The European Union (EU) at 17.3 billion USD, generated almost 22 percent. Japan accounted for 6 percent.
By comparison, China, the world’s second largest economy, generated 15 percent of global domestic product with a GDP of 12 billion USD and all the rest of the world only 30 percent combined.
Why are advanced countries concerned?
The USA, Canada, the EU and Japancurrently account for more than half of global GDP despite, with around one billion inhabitants, only having 13.3 percent of the world’s population. While 54 percent of global GDP seems high, as late as 2005, they accounted for more than 70 percent of global economic output.
Outlook for the Global Economic Balance of Power through 2023
The International Monetary Fund regularly carries out calculations covering the global economic development for the next five years. To get a feeling for the economic shifts in power in the coming years, compare the G7 and E7 countries:
- The G7 countries are the seven largest industrial nations: Canada, France, Germany, Italy, Japan, United Kingdom and USA.
- The E7 countries are the seven largest emerging economies: Brazil, China, India, Indonesia, Mexico, Russia and Turkey.
Through 2023, the G7 countries’ share of the global GDP will remain larger than the share of the E7 countries.
Implications for economic policy
In the long term, i.e. by 2050, the advanced economies’ share of global GDP will decline due to global demographic developments and the emerging and developing countries “catching up” in terms of economic productivity.
At least in the near future, however, industrialized countries will remain the largest economic powers. Those that want to increase growth and employment through international economic relations, should look to other advanced economies as partners – at least for the time being. This means two things:
- Reducing tariff and non-tariff barriers between industrialised nations is particularly important and should be measured, including in renogotiation of regional trade agreements.
- The introduction of protectionist measures between the industrialised nations is particularly negative for the advanced economies involved.
Increasing the free exchange of goods and services among the developed economies should have the highest priority for the industrial nations. The recently signed Economic Partnership Agreement between the EU and Japan, which is expected to enter into force in 2019 is a good start.
If you found this article helpful you may also enjoy our post on the Anatomy of the U.S. Balance of Trade.