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An exchange earlier today exposes a bit of an analytical lacuna. How should GDP be used in international relations? What measures are most relevant to specific contexts? 1/9
To start off, let’s acknowledge that GDP is a problematic measure for many reasons. David Pilling outlines many of them here (2/9): amazon.in/Growth-Delusio…
Briefly, GDP does not capture quality, efficiency, and non-currency transactions well. It is a flow rather than a stock, so a poor measure of wealth. It doesn’t capture inequality, naturally, and it’s an imperfect measure of well-being. 3/9
However, GDP has many advantages, being relatively easy to measure and capturing a lot very simply. It is comparable across time and geographies. 4/9
As I’ve detailed here, GDP became the preferred proxy of international power in the post-Cold War era. Prior periods had other proxies, each of which was flawed in certain ways (5/9): tandfonline.com/doi/abs/10.108…
Still, two questions regularly come up. One, is GDP best used when adjusted for currency value or purchasing power? Two, is per capita GDP more useful than aggregate GDP? The answer: It depends on the context. 6/9
For international transactions at the national level, aggregate currency-adjusted GDP is most relevant. It captures a country's relative purchasing power on the global market for such things as defence equipment. 7/9
For some other phenomena, such as a society's well-being or a state's ability to deliver public goods, per capita GDP adjusted for purchasing power is far more useful and relevant. That should be pretty evident. 8/9
Everyone is free to pick their data points, but ultimately context matters. When discussing a military-industrial relationship between two countries, nominal aggregate GDP is a more relevant indicator of leverage than per capita. 9/9
