Saturday, 10 September 2011

The irresistible march of the dragon economy

The ‘Economics focus’ column in the Economist is not the first thing I turn to when my weekly copy arrives. Nestling at the back of the finance and economics section, it is quite rare that I ever read it at all. This week’s column (The celestial economy) drew my attention by presenting the graph above. Depicting the world’s top three countries by economic dominance, it neatly demonstrates the shift of world power from Europe to America and predicts the next shift to China and India.

At the height of Britain’s economic influence, when Britannia ruled the waves and presided over an empire on which the sun never set, it had a 16.4% share of global economic power. This was almost twice the rate of the next two powers combined (Germany on 9.3% and France on 8.3%).

By 1973, the USA had become the world’s economic hyperpower, with an 18.6% share of global economic power. This time the USA’s dominance was clear – it had much more than the next two powers combined (with both Germany and Japan on 8%). By 2010, the rise of China was evident. America was still the leading power (with its economic power at 13.3% compared to China’s 12.3%), but the momentum was clearly with Asia.

In his new book Eclipse: Living in the Shadow of China’s Economic Dominance, Arvind Subramanian argues that China will eclipse America sooner than is thought. By 2030, he forecasts China to have 18% of global economic power and for the USA to have slipped to just 10.1%. India now features in the top three, and, at 6.3%, starts to close the gap with the USA. The reason for the decisive shift eastwards? Subramanian argues it is the threefold combination of demography, convergence and “gravity”.

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