The paper compares the two most popular methods of measuring a nation’s Gross Domestic Product (GDP), or its broadest measure of economic activity. One method, Market Exchange Rates (MERs), converts two different nation’s GDPs into the same currency for easy comparison. Unfortunately this approach does not take into account critical factors such as differences in the cost of living between nations which is why the method of Purchasing Power Parity (PPP) is preferred by most economists and social scientists. PPP is truest measure of a nation’s total output of goods and services. It is also the best measure to use when looking at per-capita welfare and when determining a country’s potential to achieve superpower status. However, again this approach entails some problems. Many journalists, politicians and business people don’t seem to realize this, and continue using MERs instead to compare levels of real GDP.
Using the superior PPP metric, the paper finds and projects the following:
In 2009, the BRIC economies accounted for 23 percent of world GDP, exceeding the US’s share of 20 percent.
The BRIC economies are currently one-half the size of the rich G-7 economies. By 2025, however, they are projected to surpass the G-7 economies in total size and to be 50 percent bigger by 2035.
Since 2000, the emerging market economies have been enjoying a growth advantage of 6 percent over the developed economies.
India is expected to surpass Japan as the world’s third largest economy by 2013.
Assuming a growth advantage of just 5 percent, China is projected to match the U.S. economy in size by 2019.
Measured at PPP, the BRIC economies are expected to be four of the world’s top six largest economies by 2025.