Wednesday, 26 January 2011

Trade to population, GDP ratios

As I said here, "Of course imports (or exports) as a percentage of GDP are higher in the UK than in the USA or the Eurozone, because their economies are five times as big (five times as many people), but that was on the basis of three random figures* and basic logic.

Just to see whether this stacks up in real life, I have now taken the time and trouble to harvest the relevant figures for GDP, an average of exports/imports (referred to as 'trade') and population from the fine OECD website** and prepared a chart of the trade-to-GDP ratio plotted against population (click to enlarge):
The correlation between trade-to-GDP ratio and the logarithm of the population is 0.60***.

The chart for trade-to-GDP ratio plotted against GDP looks much the same. The correlation between the debt-to-GDP ratio and the logarithm of GDP is also 0.60*** (click to enlarge):Ah well, at least we know.

* One of which is open to debate as to its accuracy. The UK's and the USA's trade-to-GDP ratios were stated correctly at 32% and 16%, but the figure given by the FT for the Euro-zone was 16% but according to the OECD it's 41%. I suspect that the OECD merely added together country figures without netting off intra-Euro-zone trade. Twats.

** I used figures from 2008 for consistency, choosing GDP and import/export figures expressed in terms of USD/purchasing power parity/current prices. Luxembourg, with a population of less than half a million has a trade-to-GDP ratio of 161%, which is completely off the scale, probably exaggerated by all the cross-border trades routed through it for tax reasons, so I excluded that otherwise tip-top country.

*** I decided to chuck out the figures for the Euro-zone and recalculate the correlation of the trade-to-GDP ratio with the logarithm of GDP or population, which is 0.60 in each case. The correlation with the actual GDP or population is only 0.37 and 0.27, i.e. much lower, which were the figures I gave originally.

9 comments:

Blue Eyes said...

Hmm. How about trade to fertile land ratios? I would say that a country is less likely to need to trade in "essentials" if it has lots of land it can devote to producing a wide variety of food. One of the reasons that Britain trades so heavily is because the fruit and veg we grow here is boring compared with the fruit and veg we can import. Pineapples, bananas, tea, coffee, sugar etc..

The invented Eurozone and the non-invented USA (amongst others) have a huge geographical size and diversity within their borders. New Yorkers don't import their wine because it comes from Califonia several thousand miles away whereas Londoners do import their wine from a few miles across the Channel.

Mark Wadsworth said...

BE, once we delve into it, there are a thousand other tweaks we can introduce, i.e. we would expect remote countries (Australia, pop. 21m, trade-to-GDP ratio 22%) to have a much lower trade-to-GDP ratio than countries with a similar sized population which are close to lots of other countries (Chile, pop. 17m, trade-to-GDP ratio 43%) and so on.

But don't imagine for one second that trade in fruit would even show up on the radar - the UK is nigh on self-sufficient in food and what it spends on pineapples, bananas and so on is 0.1% of GDP (or something).

WV: ships

Mark Wadsworth said...

BE, I checked the figures again - the UK is actually 'below the line', in other words, our trade-to-GDP and trade-to-population ratios are lower than we would expect from a simple regression, presumably because we are an island nation, drive on the right side of the road etc.

Anonymous said...

Hi Mark,

OK...how does HK and Singapore with small land and small population exports so much then?

Mark Wadsworth said...

Anon - firstly, can you quantify "export so much" - do you mean in absolute or relative terms?

Then find out their populations, GDP and trade-to-GDP ratio and see where they land on the chart. They might well be like Luxembourg, I don't know - their stat's are not included on the OECD page.

PS, at no stage did I refer to "small land", I only said "small population". Land mass is irrelevant as far as I can see.

Robin Smith said...

Lets take a look at some economic laws of nature.

1) more people means more trade means more wages

2) trade is good. It allows more production for less cost (labour) this applies without the family, between towns, across regional margins, but most importantly across international borders. "we want your goods please, have this money in exchange, we want the goods more"

History shows these laws are irrefutable. Intuition tells us they are true immediately, where the intellect toils over it for years

Lets get over infinite evidence and move on please. Good work though.

Mark Wadsworth said...

RS, these charts doon't 'prove' anything, they merely illustrate that larger economy/population = higher self-sufficiency ratio and hence lower trade-to-GDP ratio.

So next time somebody wails on about the UK importing so much (and exporting so much), we can safely point out that as a medium sized economy, this is only to be expected (low self-sufficiency ratio and high degree of specialisation) and in any event, our import-to-GDP ratio is actually relatively low.

James Higham said...

Now, the one paragraph abstract?

Mark Wadsworth said...

JH, try this:

"The larger the population, the more likely it is to have a wide range of skills and resources and hence be self sufficient. The smaller the population, the more likely it is to be specialised and thus rely on imports and exports."