The wrong way to compare economic size
Purchasing power parity data is subject to volatile revisions and is an unreliable basis for comparison
[CAMBRIDGE, US] Last month, the Nobel laureate economist Paul Krugman gave a talk at the European Central Bank’s annual research conference, which focused on geoeconomics.
The term refers to countries’ ability to exploit economic interactions for geopolitical ends. Think of China’s threats to cut off trading partners from its exports of rare earth minerals.
Krugman’s talk, titled “Economic Size and Economic Power”, rightly noted that size matters for geoeconomics. Canada, for example, has more to lose from a rupture of trade with the US, which can be expected to use its size to coerce its economically smaller neighbour. But I do not agree with how Krugman compares economic power across countries.
