Global Economic Growth, Financial Openness, and Inequality: 1990-2014

A Method for Measuring Relative. Economic Growth

The past twenty-five years have seen major changes in the world of global flows in goods, services, and capital. These have in turn affected the relations of global economic and financial power.

• • In 1990, Chinese GDP per capita was 12.4 times less than the world average.¹ The figure for the second most populous country in the world, India, was even lower, at 14.3 times less. In other words, both the most populous countries in the world placed among the 30 poorest countries, at least for which data was available in the World Bank database.
• • A quarter of a century later, in 2014, China’s GDP per capita had increased by a factor of 8.3. By 2010, it had become the second largest economy and the largest exporter of goods in the world. Indian GDP per capita had not grown at quite such an impressive rate, but was nonetheless 3.1 times greater in 2014 than in 1990.

searching for a way to measure and represent such changes in economic power and the relative economic standing of all the countries in the world in my earlier work, Economic Sovereignty and Global Capital Flows, I developed what I term the growth coefficient (Cg).² This coefficient is

© The Author(s) 2017

F. Causevic, A Study into Financial Globalization, Economic Growth and (Inequality, DOI 10.1007/978-3-319-51403-1_3

Table 3.1 Examples of how to calculate the growth coefficient (Cg) for 2000

Source: Calculated by the author using World Bank data on GDP and population.

simple, representing the ratio of a country’s share in world GDP to its share in world population, or (Table 3.1):

Cg = (Country’s GDP/World GDP) / (Country’s population/World population)

While a country’s rank in terms of the value of this coefficient corresponds to its ranking on the basis of absolute GDP per capita, the “information” contained allows the analyst direct insight into how its GDP per capita stakes up against the world average (the world average is a benchmark):

• • A coefficient of2.255 means a country’s GDP per capita is 2.255 times world average GDP per capita (or 225.5% of world GDP per capita).
• • A coefficient of 0.333 or, indeed, 0.033 for a given year informs the reader directly that that country’s GDP per capita is 33.3% and 3.3% of world GDP per capita, respectively.

As the coefficient presents relative change in economic performance (changes in a country’s GDP per capita growth rate relative to change in the world average GDP per capita growth rate), one can calculate the average change in a country’s Cg by dividing the factor of its GDP per capita growth by the factor of average world GDP growth, where by factor we mean the sum of unity and the percentage change in GDP per capita (added ifa rise, subtracted if a fall). It is worth noting that the percentage change in the Cg will be greater than that in GDP per capita. This is because the Cg measures improvement or worsening relative to percentage change in average world GDP.

We give two examples below. One when there is an absolute reduction or fall in a country’s GDP per capita and one when it is rising, but at slower rate than the world average rate. World GDP per capita rose nearly 20.1%, in 2005 constant US$, between 2000 and 2014 and this is the figure we use in both examples. This means the factor of growth of average world GDP for that period was 1+0.201, or 1.201.

• • In the first case, the country’s GDP per capita fell 8.05%, so that its factor of growth was 1-0.0805, or 0.9195.The factor for calculating the fall in Cg for the country is thus got as follows: (1-0.0805)/ (1+0.201) = 0.9195/1.201 = 0.7656. This represents a fall of 23.4% (1-0.7868 = 0.2344).
• • In the second case, the country’s GDP per capita was up 7.5% in 2014 on 2000, so that its factor of growth was 1+0.075 or 1.075. Its Cg would therefore have changed as follows: 1.075/1.201, which gives a figure of 0.895. This represents a fall of 10.5% (1-0.895 = 0.105).

Since percentage change in the Cg reflects change in relative economic standing measured by growth in a country’s GDP per capita relative to the growth in world GDP per capita, all countries growing at a rate slower than the world average are lagging behind and their relative economic position is worsening, and, conversely, countries with faster GDP per capita growth than the world average are improving their relative economic position and this is reflected by an increase in the value of the Cg.

The data for 1990, 2000, 2005, 2009, and 2014 used in this study are World Bank data on GDP at current prices in 2005 constant US$ and population figures from the World Bank database. They are available on the World Bank website.³