China’s Economy: Not So Big After All

Most measures of countries’ economies are distorted by currency exchange rates. The World Bank has developed a new method of measuring economic activity that is intended to correct for this distortion. The results are quite interesting:

The size of China’s economy is overestimated by some 40 percent based on most current measures, but is the world’s second largest, the World Bank said Monday.
In a report ranking the world’s economies, the World Bank said a more reliable method of estimation using “purchasing power parity” (PPP) shows a much smaller value than the traditional market value estimates which the Bank called “less reliable.”

By the World Bank’s measure, it turns out that most of the largest economies (including ours) are overstated, but not to the same degree. Here are the rankings, stated as a percentage of the world’s total economic output:
United States: 23%
China: 10%
Japan: 7%
Germany: 5%
India: 4%
It’s one more indication of how unrealistic Americans are who persistently rate our economy as “fair” or “poor” no matter how prosperous it is.
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