Sophia M
When looking at economic statistics for the world how do you tell between new wealth created in a country and wealth that is simply a result of exchange disparities?
When looking at economic statistics for the world how do you tell between new wealth created in a country and wealth that is simply a result of exchange disparities?
Like, some amount of a countries gdp is going to be from actual wealth creation, but some amount will be from wealth that was created somewhere else but comparitivly undervalued that is treated as its full value in the country so it appears new value was created, but really it was just the result of it being undervalued before entering the country.
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Well, this is a difficult question. But an interesting one!
Generally speaking, there are two ways to tackle this question.
First of all, you can follow a popular view, which states that new wealth can be created by simply importing goods from other countries. Take pineapples for example. These are produced in some African countries. These countries produce much more pineapples than they need, therefore the new wealth that they create by producing one pineapple is relatively low, which is also reflected in the price of pineapples in these countries.
Western countries also demand pineapples, and value them highly because they are quite rare in our regions. By importing pineapples from the producing countries to the Western countries, the value of these pineapples rises, because the new owners value them more than did the old ones. Therefore the total value of the pineapple is increased by simply moving it from one place to another, so new wealth is created.
In the view you seem to support, you can’t create new value by simply importing goods which are undervalued in another country. I’m afraid however that it is impossible to distinguish between actual new wealth and wealth that is the result of undervalued goods with our current statistics. So it is very difficult to estimate how much wealth a country realy produces. The only thing you can do is estimate how much of all imports/exports are a result of comparative undervaluation. This will normally be a relatively small percentage because undervaluation tends to disappeare because of export and import. Let’s say it makes out 15% of our imports. Now take the GDP of your country from a certain year minus 15% of the imports during this year. This will give you an estimation of the new wealth that was created during this year. But off course, 15% is just a guess.