Number Theory: The evolution of world's economic geography

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With Donald Trump declaring a full-fledged trade war, the existing economic order is being tested on a daily basis. Is a global economic realignment on the cards? What will be the costs/effects of such a realignment? A look at long-term trends in geographical distribution of global GDP is a good way to answer this question.

The Adani Group-owned Mundra port in Gujarat. (PTI Photo) (PTI)

The evolution of world's economic geography

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  What has happened to continent-wise GDP shares?

  Most economic databases do not take continents, or at least all of them, as a unit of economic analysis. While this makes sense in some ways – oil rich West Asia is very different from South Asia although both are in the Asian continent – it is interesting to look at continent-wise GDP shares overtime. HT has used the World Bank’s World Development Indicator (WDI) database – it starts in 1960 – to prepare its own continent-wise GDP database in constant dollars. Because the WDI database uses approximations to calculate regional or global GDP, the sum of country-wise GDP does not always equal world GDP. To be sure, the difference is minimal and does not exceed 10% at any point of time. For the period after disintegration of the Soviet Union (WDI database does not have Russia’s GDP estimates pre-1989), the difference is always less than 4%. A decade-wise analysis shows that it is a story of the rise and rise of Asia, which had a GDP share of 34.3% in the 2010-23 period. Asia’s gain has been predominantly North America’s and Europe’s loss.
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  Asia is even more key in terms of global GDP growth contribution

  Asia’s contribution to the growth in global GDP growth went up from 17.2% in the 1960s decade to 48.5% between 2010-23. While Asia’s contribution to growth has been increasing steadily, it became the largest contributor to growth only in the 1990s. Also, Asia’s contribution to global GDP growth is much bigger than what this number was for North America and Europe during their dominance. Europe’s contribution to global GDP growth fell from 30% in the 1960s to only 18.9% in 2010-23. Meanwhile, North America’s contribution to growth has gone down from 28.7% in the 1960s to 23.1% during the 2010-23 period.
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  But the picture of Asian dominance changes drastically when one does a country-wise analysis of importance in global economy

  49.6% of Asia’s GDP in 2023 came from China. This number is 44.7% for the period from 2010-23. If one were to look at the combined GDP share and growth contribution of US and China, the world’s top two economies today, the respective numbers turn out to be 39.9% and 47.7% in 2010-23. These numbers underline the importance of the American and Chinese economy in the world today. India, which reached its peak both in terms of GDP share and contribution to global growth in the 2010-23 period was much below these two countries.
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  US share in the combined GDP share of the top two countries is lower than what it used to be in the past

  This is another important thing to keep in mind. The US and China had a combined GDP share of 42.6% in 2023 and this proportion has been increasing in the past two decades. While the combined share of the top two countries has remained roughly the same over the decades, China’s share as the country with the second-highest GDP share at 15.6% in 2010-23 is much higher than the other countries that ranked second before – it was Germany at 8.7% in the 1960s and Japan from the 1970s to the 1990s with an average share of 9.4%. At the same time, US’ share in global GDP, while being the highest in every decade, has fallen from 33.2% in the 1960s to 24.4% in 2010-23. This just shows that the competition between the top two countries is now higher post the economic rise of China in the 2000s. The trend only underlines the potential disruption from an economic war between the world’s two largest economies: US and China.