Over the past couple months, I remember these Business Insider maps floating around that roughly equated the GDP of different states in the U.S. to countries around the world.
I was anxious to see what country was producing an economic output similar to that of my home state Kentucky: New Zealand. Oh, Cool. I hadn’t really learned much about New Zealand besides that fact that it was a small island off of the coast of Australia. For that reason, the comparison didn’t really give me a great picture of Kentucky’s relative economic position in the global marketplace, but I thought it was an interesting insight nonetheless.
Shocker #1: The sunshine state of California.
California’s economic output was approximately the same as the country of Brazil. BRAZIL. California, a state with 38.8 million people and a GDP of $1.959 trillion produces roughly the same amount of goods and services as a South American country that spans 3.28 million miles2 and is populated by 200.4 million people.
Wow. I’m torn between being impressed with California and crying for Brazil, where GDP per capita, the greatest indicator of quality of life is only $11,208. (For reference the GDP per capita of California is ~ $46,000 and for the U.S. it is ~$42,000).
Shocker #2, and #3: Texas and the tiny state of Maryland.
Texas produces the approximately the same economic output as Canada. This is hard to fathom because Canada is a G8 country. And the tiny state of Maryland, produces about the same economic output as South Africa, which has historically been Africa’s largest economy.
Before we can really understand the magnitude of this information and why it’s important, we must first understand what is meant by economic output.
Economic Output=GDP.
GDP is designed to measure the value of economic production. By definition, it is the market value of all final goods and services produced within a country in a given year. GDP per capita, is actually GDP divided by the total population, and is one economic indicator of quality of life.
Market Value. GDP, however, doesn’t just add up quantities of items produced (5 bikes + 4 shirts=9). Instead GDP is adjusted to calculate the value of each item produced then totaled. Value is then determined by the current average market price. For example: if the average price of a bike is $100 and the average price of a shirt is $20, the GDP is then calculated as (5 bikes x $100 + 4 shirts x $20=$580). Assuming those were the only 2 goods produced, of course.
Final Goods and Services. A final good, like a bike, is sold to final users for consumption or held in a personal inventory. A bike seat, that is sold to a company that manufactures bicycles, is an example of an intermediate good. When calculating GDP only the final good is counted. If you counted the bicycle seat and the value of the completed bicycle, you would be double counting the bicycle seat. To avoid this over-valuation, we use only the market value of final goods.
Goods and Services Produced.Goods and services together represent the output of an economy. Services provide a benefit to consumers without the production of a tangible output. When calculating GDP, only goods and services produced that year are counted. The sale of used goods are not included in GDP (because they were already counted in the year that they were produced). Financial assets like stocks and bonds are not counted either. However, the services of used-car salesman/woman and brokers, for example, are included in the calculation.
Within a country. U.S. GDP only counts the value of goods and services produced by labor and property located in the U.S., regardless of the nationality of the worker. For example the work that a German Citizen does while working in Miami, Florida on a summer internship is included in the U.S. GDP.
The comparison of U.S. states to entire countries
With a more thorough understanding of GDP, we can now understand just how mind-boggling it is that the single states of California, Texas, and Maryland produce relatively the same economic output as Brazil, Canada, and South Africa, respectively. There is no easy answer as to how individual states could single-handedly out produce entire countries, so I will not attempt to give you one.
But, in closing, I will add that in my personal opinion, this map is a great testament to the implicit and explicit problems that impede successful production and business development in other countries, and the real advantage that American companies–who do not have business operations interrupted by things like electricity shortages and political transitions, to name a few.
Reference: Modern Principles of Economics by Tyler Cowen and Alex Tabarrok
The original map was produced by Mark Perry, author of the Carpe Diem Blog, and is available here: https://www.aei.org/publication/putting-the-ridiculously-large-18-trillion-us-economy-into-perspective-by-comparing-state-gdps-to-entire-countries/.
