Friday, February 3, 2012

If GDP per capita in USA, EU, China, India was to converge then ...

2010 GDP (PPP)(1) Population (2)
$ billion                     in billion ppl
EU 15,203                0.500
USA 14,526             0.313
China 11,300            1.340
India 4,058               1.210
Total 74,385             6.992

(1) IMF data. Source Wikipedia
(2) Wikipedia

What do these rough numbers tell us? That assuming the total sum GDP of the first 3 remained constant, then
for the GDP (PPP) per capita to converge, the convergence level would be at about 19000 USD. Given that the per capita is now (2010) 46400 in the USA, 30400 in the EU and 8400 in China, that would mean a loss of 27400 per US citizen (in GDP per capita) ie 59% loss, 39% for the EU and +125% for China!

Obviously some of the gains of China will be absorbed by GDP growth but the previous figures give you an idea of the reductions in GDP per capita the EU and especially the US will have to absorb as the GDP per capita of China converges towards the EU and US ones.

Should I add the scenario where India is included too? The level of convergence then becomes 13400 USD, ie 6000 less than the previous scenario. And an even bigger reduction  for the GDPs per capita in the US and the EU!

Should I also add Brazil and Russia? The Asian tigers?

Fasten your seat belts!

Of course this convergence will take time. But how much?
Mind you, GDP adjusted for PPP was used, which is not necessarily the correct approach.

The effects of this convergence are already being seen. The fact that China has so far used its "profits" from trade to invest them in US T-bills, other binds as well as other assets in the US, the EU and elsewhere, has partly eased the effect so far. But is it not delaying the inevitable?

One approach is to say that convergence is only fair. And that what needs to be managed is the transition, the shock for Americans and EUropeans.

Now do you feel a tad more allegiance to the Greeks?

Of course this analysis is based on rough estimates, rough calculations and rough assumptions. But the future is also in any case rough for Americans and EUropeans.

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