The above is a great short thread on the ‘tiny Russian economy’ meme doing the rounds a few weeks back:
Arnaud Bertrand
@RnaudBertrand
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40m
Replying to
@RnaudBertrand
To him “the war made us realize that the Russian economy is considerably more important than we thought”He says that a big reason for this misjudgment is exchange rates.
If you compare Russia’s GDP by converting from rubles to $, you indeed get an economy the size of Spain’s.
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Arnaud Bertrand
@RnaudBertrand
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39m
However this is the worst possible way of comparing the size of economies.A slightly more accurate way is to adjust for PPP (purchasing power parity: https://investopedia.com/updates/purchasing-power-parity-ppp/)
When you do so, you already realize that Russia’s economy is actually more like the size of Germany’s.
investopedia.com
What Is Purchasing Power Parity (PPP)?
Purchasing power parity (PPP) is an economic theory that compares different the currencies of different countries through a basket of goods approach.
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Arnaud Bertrand
@RnaudBertrand
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40m
BUT you also need to take something else into account: “What is the share of the service sector versus the share of the commodities & industrial sector?”To Sapir the service sector is today vastly overvalued in the world compared with the industrial sector and commodities.
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Arnaud Bertrand
@RnaudBertrand
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39m
He says that when you adjust for this Russia’s economy is vastly bigger than Germany’s.His estimate is that Russia represents in fact maybe “5% or 6% of the world’s economy”, almost double the size it’s normally estimated at on a PPP basis (https://statista.com/statistics/271379/russias-share-of-global-gross-domestic-product-gdp/)
Addendum:
Here is a graph comparing Russian Federation to Australia, France, Germany, Italy, Spain, and United Kingdom:
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