September 08, 2011
Joe Biden seems badly confused after his recent trip to China. In an oped column he told NYT readers that:
“according to the International Monetary Fund, America’s gross domestic product, almost $15 trillion, is still more than twice as large as China’s; our per-capita G.D.P., above $47,000, is 11 times China’s.”
Mr. Biden was looking at the wrong table. It seems that he was using GDP measures based on exchange rate comparison. This would lead to an understatement of China’s GDP if its currency is under-valued.
Economists typically use purchasing power parity measures to make comparisons. These measures apply a common set of prices for the goods and services produced in different countries. The IMF’s projections show that China’s GDP is projected to be over $11 trillion in 2011 measured on a purchasing power parity basis, more than 70 percent of the U.S. level. Furthermore, it is projected to pass the United States by this measure by the end of the next presidential term of office.
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