The Economics Journal

Gross Domestic Product (GDP) is a very important measure in macroeconomics that measures the total value a nation (or a region) produces. It is the fundamental unit through which most measurements of wealthiness, growth and economic importance are measured. Higher the value of GDP, richer the country is.

However, in computing the GDP the area of the region is never taken into account. Though a 1999 paper by John Gallup and Jeffrey Sachs introduce the concept of GDP density (Per-capita income * population density), they didn’t elaborate it and use it to understand the economies. Area Intensive measure could show some insight into an economy – whether the value produced by an economy is people centric or whether it is resource centric. For a country like  Saudi Arabia (sitting on world’s largest oil reserves) almost all value is produced from the land, while for a country like Singapore almost all value is the people. GDP’s area intensity can be a useful measure for policymakers and analysts to understand the nature of an economy. There are some interesting insights that this measure can show.

Here is the GDP per sq.mile. The extremes are Russia and Singapore, with Singapore producing 2500 times more value per sq. mile. Russia and Brazil as the chart shows are primarily land centric in GDP value additon, while Germany, UK and Japan are highly people centric. This means the fortunes of Russia and Brazil would swing hard with commodity and agricultural prices and these economies will be highly impacted. Western Europe and Japan on the other hand will remain stable with commodity prices, but will see their fortunes impacted by labor demographics and productivity. As labor force ages and diminishes, economies with more people centricness would face major upheavals.

The three major economies of tomorrow – US, China and India are very close to each other and in the middle of pack. They will partly be impacted by commodity price change and partly from demographic changes, but would be on far better footing due to the balance.

Interestingly this measure also indicates India is not as poor as other statistics show. Unlike US or China, it doesn’t have enough area to increase food production, the land to build dams, industries and infrastructure, and the mineral and energy resources to spur the industrial revolution. Given the lesser area, it means India has to emulate Western Europe and Japan in building more of a people centric economy rather than emulating just China and USA.