Wednesday, June 3, 2015

Ths Shifting Geographic Center of the World Economy

A few weeks back, I offered a figure showing "The Shifting Geographic Center of US Population" (May 14, 2015). In a similar spirit of looking at widely known facts from a new perspective, here's a figure showing the shifting center of global GDP over the last 2,000 years. The figure is from a June 2012 report by the McKinsey Global Instituted called "Urban world: Cities and the rise of the consuming class," written by Richard Dobbs, Jaana Remes, James Manyika, Charles Roxburgh, Sven Smit and Fabian Schaer. Here's the figure, showing the center of gravity for world GDP moving from Asia, across Europe, and almost all the way to the United States, before being pulled back again toward Asia.

A few quick thoughts: 

1) Remember that looking at total GDP will tend to give more weight to places with a higher population. Thus, both the large population of China and it's relatively high level of per capita GDP help to pull the global center of GDP close to China from the years 1 to 1000. 

2) From 1000 to 1500, there is a rise in the economies of the Middle East, as well as some growth in the economies of Europe. For an overview of the economic institutions of the Middle East circa 1000, along with a discussion of  how they assisted economic development around that time but gradually turned into a hindrance to growth in the centuries that followed, see Timur Kuran's essay, "Why the Middle East is EconomicallyUnderdeveloped: Historical Mechanisms of Institutional Stagnation," in the  Summer 2004 issue of the Journal of Economic Perspectives. (Full disclosure: I've been Managing Editor of the JEP since its inception in 1987.)

3) The period from 1500 to 1820 is sometimes referred to by economic historians as the "First Divergence"--the period when economic growth rates in western Europe began to surge ahead of the rest of the world. For one possible explanation of why, see the essay by  Nico Voigtländer and Hans-Joachim Voth, "Gifts of Mars: Warfare and Europe's Early Rise to Riches." in the Fall 2013 issue of the Journal of Economic Perspectives. They write:
"We argue that Europe's rise to riches was driven by the nature of its politics after 1350 -- it was a highly fragmented continent characterized by constant warfare and major religious strife. No other continent in recorded history fought so frequently, for such long periods, killing such a high proportion of its population. When it comes to destroying human life, the atomic bomb and machine guns may be highly efficient, but nothing rivaled the impact of early modern Europe's armies spreading hunger and disease. War therefore helped Europe's precocious rise to riches because the survivors had more land per head available for cultivation. Our interpretation involves a feedback loop from higher incomes to more war and higher land-labor ratios, a loop set in motion by the Black Death in the middle of the 14th century."

4) The shift in the global center of GDP from 1820 to 1913 and 1940 is the power of the Industrial Revolution, affecting not only western Europe but also the rise of the US economy. 

5) Between 1940 and 1950, the capital stock and economic output in western Europe is savaged by World War II, and the global center of economic gravity continues to move toward the US. 

6) After about 1950, the relative size of the US economy relative to the world economy starts diminishing. The economy of Western rebound. The economy of Japan rises, followed by the east Asian "tiger" economies like South Korea, Taiwan, and Thailand, and more recently in the last few decades by rapid growth in China and in India. 

7) The enormous movement in the world's geographical center of GDP over the single decade from 2000 to 2010 illustrates the extraordinary continued growth of the economies of China and India. The map illustrates that the shift in global economic gravity as a result of the Industrial Revolution that took roughly a century after about 1820 is going to mostly reverse itself in 2-3 decades after about 2000. I sometimes say that when world historians look back on our time 50 or 100 years from now, the Great Recession will get a page or two in the history books, but the economic rise of China and the rest of Asia will get a couple of chapters.

Of course, bear in mind some obvious concerns with any figure like this one. It's based on national-level GDP data, which of course becomes shakier as one goes back in time. Projecting the "center" of economic activity on the surface of a somewhat spherical globe poses some conceptual problems, and if you care about the exact methodology, you can look at the appendix to the McKinsey report. But any way you slice it, the big picture changes will stand out.