Introduction
Many people like to compare the relative GDP performance of countries because it reflects the income produced in each country. This note will use the OECD database to provide some simple comparisons of GDP measured in nominal and real terms. The data-explorer interface was used to retrieve the data to Excel files which were processed in R.
The main points are:
Countries have different economic structures (thankfully or comparative advantage would be in trouble)
The constant dollar ($K) estimates are impacted by the relative prices of the sectors deflated in the aggregate and distort the comparison.
Use of volume of inputs to measure volume of outputs in public sector activities is an issue in standard productivity measurement.
Nominal GDP comparisons avoid this problem.
Canada has some catching up to do but is not really falling further behind the US but the nominal ($C) results are impacted, particularly in Canada’s case, by commodity export prices.
Comparing Canada and the US on GDP
The volume chart shows the data converted to US$ with a base year of 2015 and constant PPP conversion. The data are converted using purchase power parity estimates. A detailed discussion is available at this link Purchasing Power Parities - FAQ. Essentially the data are converted using rates of currency conversion that equalizes the purchasing power of different currencies by eliminating the differences in price levels between countries.
One notices the widening gap between the Canada and US measures. The level and the growth rate of the deflated GDP measures are affected by the price levels in the base year. The current dataset is defined using a 2015 base year. Canada’s commodity exports including energy are relatively of lower value at that point than if a later base year had been chosen. This weight effect is also an issue for the relatively growth rates. The impact of the commodity trade issues in 2020 are easily seen. The Canadian growth rate is more strongly affected by this valuation effect than the growth rate of the less commodity dependent US economy.
With this chart, one is comparing the growth rates and levels of two different economies with different industrial/commodity structures. These differences affect levels and growth rates.
The left hand chart shows the nominal GDP measure, possibly more related to the income that matters to Canadians. Time-varying PPPs are used for conversion. We can see the effect of the energy price fall in 2014-15 as well as the subsequent improvement in growth rates.
The next charts show the ratio of the Canada to the US estimate.
The essential point is that the trend in the comparison is very different in nominal and in volume terms.
The sectoral composition of the two economies is very different. Canada is relatively more dependent on exports, particularly commodity exports, than the US. We also do not have a significant concentration of sectors such as computers that have quality-adjusted GDP. This quality adjustment affects the volume levels and probably growth rates.
The Canadian public education and health sectors are valued at the cost of their inputs. Output is neither measured nor priced. This affects estimates of productivity and the level of output. A lot of ink has been spilled on the level and variation of acute health care activity which suggests serious measurement issues. The data show that the US spends far more on health care than other countries for limited or no gain health results.
Multi-Country Comparisons of GDP
The OECD publishes similar data for a range of countries. Rank comparisons are tempting. The time series shown above suggest that point comparisons may result in rank shifts. The next two charts show the OECD country portfolio ranked from high to low. Somewhat arbitrarily, the charts show 2011 and 2022.
Nominal GDP is first followed by the volume measure of GDP. Luxembourg remains the top in both presentations. In the nominal race, Canada slips 4 places between 2011 and 2022 and the US slips one places. Presumably, the relative weight of exports and their prices have some impact. In the volume presentation, Canada remains at the 15th rank but the US slips one place down. In the same period, Germany rose 2 places in volume terms, but rose 6 places in the nominal rankings.
Summary
The data presentation is an interesting exercise in the manipulation of social accounting aggregates. The variations in the country rankings and trends suggest that there are a lot of moving parts in the details of each countries economic structure and activity and that it is challenging to see “one size fits all” policy directions. Specific comparisons of sectors, adjusted for factors such as investment and markets, may be more useful
The names of the workbooks indicate the tables in the OECD database if replication or further analysis is desired.
This boring note was written (and copyrighted) by Paul Jacobson not AI