The Global Economy’s Shifting Center of Gravity

This posting seeks to repair that and provide a depiction of what the somewhat longer-run historical evidence says.

In the current policy debate on whether China, India, and the rest of Asia can continue to grow without a return to international markets of the US consumer—or, indeed, the opposite whether those national-economies will from now form the engine of growth for the global economy—compelling empirical evidence has been relatively scarce.

Define the global economy’s centre of gravity to be the average location of economic activity, measured 3-dimensionally, across geographies on Earth. To fix ideas, I obtained PPP-adjusted incomes and geographical location data (World Development Indicators Online, Asian Development Bank, Google Earth, Brinkhoff; and Grether and Mathys, 2009). By merging already-extant data and estimating previously unused locations (distributing national income across urban agglomerations and rural places), I derived nearly 700 identifiable places on the planet where economic activity is measurable.

Since I use PPP-adjusted incomes data, the standard Balassa-Samuelson reasoning suggests that poorer economies will generally see an increase in their relative weights, as compared to when using incomes evaluated at market exchange rates. However, if those economies are also the fast-growing ones, then over time this Balassa-Samuelson effect ought to diminish. Thus, because of my use of PPP incomes data, any conclusions that suggest the rising relative importance of China, India, and other poorer parts of the world might be, in actuality, under-estimating the true underlying effects.

I find the following: In 1980, the global economy’s centre of gravity was mid-Atlantic. This, unsurprisingly, reflects how North America and Western Europe between them held by far the greatest proportion of global economic activity. However, by 2008, that centre of gravity had drifted to a location east of Helsinki and Bucharest. Of course, this change occurred not due to the emergence of Turkey or Belarus, but instead from the continuing rise of China, India, and the rest of Asia. It is this rise of the East that has pulled the global economy’s center of gravity 4800 km (75% of Earth’s radius) Eastward across the surface of the planet. Extrapolating growth in those almost 700 locations across Earth gives the world’s economic centre of gravity locating by 2050 literally between India and China. Observed from Earth’s surface, the global economy’s centre of gravity will move from its 1980 location 9300 km or 1.5 times the radius of the planet across Earth’s surface.

There is, of course, no necessity that the centre of gravity locate on the planet’s surface. Indeed, the calculation determines that the global economy’s centre of gravity has typically been about 2800 km beneath the surface of the planet. Visualizing the drift of such a subterranean point is not straightforward: it matters where the observer is located in three-dimensional space, and distortion is inevitable when mapping onto a flat two-dimensional surface even just the surface of the three-dimensional Earth, much less subterranean locations as well. To minimize such distortion, I construct projections from the North-South axis of the planet to a cylinder having its axis aligned to that North-South axis and placed tangent to the planet at the Earth’s equator.

The resulting Figure shows the projection of the global economy’s center of gravity to that cylinder, placed against a familiar background of countries, coast lines, and oceans:

The center of gravity at 3-year intervals is indicated by dots in black for 1980-2007; the extrapolation between 2010 to 2049 is indicated by dots reduced in size and red in color.

The global economy’s center of gravity has moved steadily east over the last 30 years, and looks set to continue that trend, slowing down only by around 2050 to converge just inside China, on China’s border with India.

The Figure therefore shows (a) it is no historical surprise that the global economy might continue to be powered forward by Asia, with or without the US consumer returning to international markets—this Asian growth engine has indeed already done so for much of the last three decades; (b) the shift in the distribution of global economic activity eastward is substantial and long-term; this switch in relative importance is not just the result of a cyclical emergence out of the 2008 global financial crisis.

A paper bearing the same title as this blog posting contains details and more extensive discussion. An animation of the Figure that shows evolution in time is available.