US vs. China: Measuring Real Economic Power

(23 November 2021) Gross Domestic Product (GDP) is a basic measure of the overall size of a country's economy and is often used to compare different countries' economic power. But what exactly is compared when someone says that the GDP of country A is larger than the GDP of country B?

The System of National Accounts (SNA) of the United Nations defines GDP as a monetary value of final goods and services — that is, what end users actually purchase — produced in a country, along with some non-market "production" such as defense or education services provided by governments, during a specific period of time (say a quarter or a year).

As the UN definition of GDP implies, the whole economy can be divided into two major sectors: the so-called real sector, which includes production of goods and real assets, and the services sector, which includes production of services, everything from banking to education to healthcare.

This dashboard uses U.N. data to analyze the economic powers of countries measured solely by the ability of the economy to produce goods and real assets like infrastructure, dwellings and nonresidential buildings, and machinery and equipment. We estimate GDP produced in the real sector of an economy as a sum of value added in four broad economic activity groups: Agriculture, Industry, Construction, and Transportation and Communications.

Why the focus on the real sector? The strength of the real sector reflects two of the basic characteristics of an economy that determine its ability to successfully compete in a world of rising tensions between major powers: self-sufficiency and military power. The third basic economic factor affecting a country's competitiveness — the availability of resources — is not considered here.

• Using real sector GDP in cross-country comparison of economic power significantly changes the view of the global economic landscape. The U.S. economy, which is the world's largest economy when measured by total GDP at current US dollars, is more than $500 billion smaller than China's when measured by real sector GDP.
• In 2019*, the ten largest economies in terms of real sector GDP included Russia, Korea and Indonesia. In the ranking by total GDP, these countries are lower down the list, and Italy, Brazil, and Canada round out the top ten.

Note: 2019 is currently the latest available year in the U.N. National Accounts Main Aggregates Database