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What determines the economic size of a nation in the world: Determinants of a nation’s share in world GDP vs. per capita GDP

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  • Park, Jun-ki
  • Ryu, Deockhyun
  • Lee, Keun

Abstract

This study examines the determinants of economic size of a nation measured as its share in world GDP, in comparison with the conventional determinants of per capita income growth. These two indicators are complementary. The former represents the economic size (power) of a nation, whereas the latter stands for people’s standard of living. This paper first proves that the determinants of these two different aspects of economic growth are different. It then goes on to verify the followings. First, the determinants of the GDP share of each nation are the variables that represent the share of each nation in the world, such as shares in world population, investment, human capital, exports, R&D investment, and financial capital flows. Second, currency undervaluation promotes per capita GDP growth via increasing exports, but tends to reduce a country’s share in world GDP because undervaluation depreciates its GDP at market exchange rate, whereas its indirect effect through export share changes is uncertain due to the zero sum nature of competitive undervaluation among nations. Third, trades are important in world GDP share determination as long as it is measured by share in world exports which represent economic rivalry among nations. The study conducts conventional country-panel econometric analyses after it proposes some theoretical basis for such empirics.

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  • Park, Jun-ki & Ryu, Deockhyun & Lee, Keun, 2019. "What determines the economic size of a nation in the world: Determinants of a nation’s share in world GDP vs. per capita GDP," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 203-214.
    • Handle: RePEc:eee:streco:v:51:y:2019:i:c:p:203-214
    DOI: 10.1016/j.strueco.2019.09.001
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    More about this item

    Keywords

    Size of an economy; Economic power; Exports; A share in the world GDP; International rivalry; Undervaluation; Middle-income trap; Economic growth;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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