A list of the worlds largest economies should only be used keeping in mind the limitations of the measurement. Economies are rated by the size of a country’s Gross Domestic Product, or GDP. GDP is the value of all the good and services that a nation produces in a year. All services and goods, whether private or public, are included in the calculation.
Worlds Largest Economies in 2010
However, the GDP is considered by some to be an inaccurate figure to truly show the wealth of a nation. The GDP was first used in a 1934 report to Congress, and has limitations to use as a general determination of a country’s health.
As stated in the definition above, the GDP is the value of all goods and services that the country produces. Again, the emphasis is everything. This means it is the output off all private and public entities, whether the goods and services directly benefit the citizenry or not.
Some of the problems with the GDP calculation include the following.
- If a country is at war, and producing a lot war materials, the GDP will go up. Although the material produced does not benefit the citizens, the value of the material is reflected in the GDP.
- If there is a natural disaster in the country, and rebuilding is instituted, this counts towards the GDP. For example, when Hurricane Katrina hit the United States, and rebuilding was initiated, this raised the GDP although the citizens affected by the disaster were worse off.
- Manmade disasters affect it in the same way. When the oil spill occurred in the Gulf of Mexico, and the cleaning started, the costs of the cleaning were reflected in the GDP. Again, this was not spending that raised the lifestyle of the citizens of the country.
- All crime related costs count towards the GDP. All the prisons built, the guards working, the police working to keep people safe, count towards the GDP. If a country has a higher crime rate, this will reflect in a raised GDP.
- The GDP also does not take into account who owns the businesses producing the services or goods. If a business is owned by someone out of the country, the GDP calculation does not take this into account. Its production still counts in the host country’s calculation.
- Countries that borrow to spend will have a higher GDP. For instance, here in the United States where the federal government borrows money to maintain their spending, this will keep the GDP high, but later the country will have to repay the debt.
- Income distribution is not taken into account. In the past years, the GDP has goe up, but wages have decreased. The top earners have increases in income, but with the GDP calculation, it looks like everybody has benefited, but in reality they have not.
- Volunteer work, home based work, and barter transactions are not counted into the GDP Calculation. If a county has a lot of non money transaction, this may show as a lower GDP. Let’s think about elder care. If a country takes care of their elderly in the home, it is not reflected in the GDP. As they build nursing homes, and pay others to take care of the elderly, this will reflect positively in the GDP. But, can we say that it is a positive affect for the general population?
GDP ratings are expected to shift as countries that are currently rated as third world counties build stronger economies. China is expected to surpass the United States by 2020 and India to have the worlds largest economy by 2050.
The European Union is a a group of 27 countries, largely in Europe, who together represents one of the largest world economies. If the European Union was to be included on the list above, it would be either number one or two, depending on the reference used.
A list of the worlds largest economies shows part of the story of the country's health and wealth, and should be used in conjunction with other measurements.