MAR

2016

comment : 0

It depends what you mean by “largest” [*1].

1 By GDP (nominal) the UK is the fifth (2014 estimate)

Nominal GDP [gross domestic product—the value of all final goods and services produced within a state in a given year] does not take into account differences in the cost of living in different countries, and the results can vary greatly from one year to another based on fluctuations in the exchange rates of the country’s currency. Such fluctuations may change a country’s ranking from one year to the next, even though they often make little or no difference in the standard of living of its population [*2].

2 By GDP (nominal) per capita the UK is the nineteenth (2014 estimate)

GDP (nominal) per capita is essentially GDP (nominal) (as above) divided by the population.

… gross domestic product per capita at nominal values… is the value of all final goods and services produced within a nation in a given year, converted at market exchange rates to current U.S. dollars, divided by the average (or mid-year) population for the same year.
[Comparing differing countries’ GDP per capita] does not take into account differences in the cost of living in different countries, and the results can vary greatly from one year to another based on fluctuations in the exchange rates of the country’s currency. Such fluctuations may change a country’s ranking from one year to the next, even though they often make little or no difference to the standard of living of its population.
… GDP per capita is often considered an indicator of a country’s standard of living; although this can be problematic because GDP per capita is not a measure of personal income [*3].

3 By GDP (PPP), the UK is the tenth (2014 estimate)

Comparisons using PPP [purchasing power parity] are arguably more useful when assessing a nation’s domestic market because PPP takes into account the relative cost of local goods, services and inflation rates of the country, rather than using international market exchange rates which may distort the real differences in per capita income. It is however limited when measuring financial flows between countries. PPP is often used to gauge global poverty thresholds and is used by the United Nations in constructing the human development index.
Tim Callen of the International Monetary Fund (IMF) outlined the general difference and usefulness of PPP over market rates, with essentially PPP being a better measure for assessing the cost of living, well-being of a country’s population, and measuring non traded goods and services within a country [*4].

4 By GDP (PPP) per capita, the UK is the twenty seventh (2014 estimate)

[GDP (PPP) per capita is] the purchasing power parity (PPP) value of all final goods and services produced within a country in a given year, divided by the average (or mid-year) population for the same year.

Comparisons between countries are unreliable because
Such calculations are prepared by various organizations, including the International Monetary Fund and the World Bank. As estimates and assumptions have to be made, the results produced by different organizations for the same country are not hard facts and tend to differ, sometimes substantially, so they should be used with caution [*5].

Why is this important to the referendum? Because, if the UK is the fifth largest economy in the world, it is in a substantially different position from one where it is the 27th. It doesn’t matter what politicians say. Either the UK is the fifth or it is not. If it is the 27th (still a healthy place to be, of course), the UK is in a far less powerful position.

The bottom line

It is unlikely that, in any real sense, the UK is the fifth largest economy in the world. This places the UK in a weaker place, vis à vis other countries, than it would like (and needs, if it is to successfully leave the EU.)

I am an agnostic on the subject of remaining in the EU. These blogs are, in part, to help me work out the balance of pros and cons, but also to help others do this, too.

[*1] The United Kingdom (Wikipedia)
[*2] List of countries by GDP (nominal) (Wikipedia)
[*3] List of countries by GDP (nominal) per capita (Wikipedia)
[*4] List of countries by GDP (PPP) (Wikipedia)
[*5] List of countries by GDP (PPP) per capita (Wikipedia)

Related blogs:
> All EU referendum blogs