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What is the real size of China and India?

The International Monetary Fund (IMF) has just published new data on the GDPs of several countries adjusted by Purchasing Power Parity. Using an improved methodology the results are surprising. China and India, when measuring GDP at PPP, are not as large as it was first thought. When revising the data for year 2005 (the revision for 2006 is not out yet), China’s GDP of 2,243.8 billion dollars (when measured at standard exchange rates) becomes 5,333.2 billion dollars when measured at Purchasing Power Parity. Until these new numbers came out, it was thought that China’s GDP at PPP was closer to 8,600 billion. So this represents a reduction of close to 40% of the previous estimate. Something similar occurs with India. Its GDP of 778.7 billion becomes 2,341 billion when measured at PPP, and this is approximately 40% lower than the previous estimate of 3,700 billion dollars. There are adjustments in other countrie’s calculations, but none are as dramatic as those of China and India.

This revision implies that the size of both countries, and of emerging countries as a whole, is smaller than previously thought when measuring GDP’s at PPP. However, this should not lead us into the mistake of thinking that emerging countries are not as significant as it was thought. These new numbers affect the level of GDP, but not the growth rates of GDP. So a significant, even though slightly lower than before, proportion of world growth is being generated by emerging countries. And the order of the economies in terms of GDP’s at PPP is only slightly affected. If before the revision the largest economies of the world were: United States, China, Japan, India and Germany, now, with the revised numbers the order is: United States, China, Japan, Germany and India. So only India and Germany switch places. But we will see for how long. With Germany’s GDP at 2,514 billion, the difference with India could dissapear in a few years, as long as India continues to grow at high rates. So, even though the revision is important, it does not put into question the very large, and increasing, importance of both China and India, and of the emerging world as a whole, in the world’s economy.