Fisher Investments Press: Own the World: What’s Your GDP Worth?

As you’d expect, countries usually calculate their GDP in their home currencies. We calculate our economic output in US dollars. Russians use rubles. Japanese use yen. And most countries in the European Union use Euros. How can you compare economies when they’re measured in different units? Quite simply, you can’t. You need to convert these calculations to a common measure. that basically leaves you with two options. You can use exchange rates to convert everything into one common currency. Or you can use a measure known as purchasing power parity (PPP).

Try Exchange Rates
Fisher Investments thinks using exchange rates to compare GDP is fairly easy. You take the GDP reported in a country’s local currency and convert it to a common currency. It doesn’t matter which currency you choose as your base. The proportions will all turn out the same. Since we’re in the US, we tend to convert everything to US dollars. For example, Italy’s 2007 GDP was €1.5 trillion. The exchange rate between the euro and the US dollar averaged about $1.37 per euro that year. So in US dollars, Italy’s 2007 GDP was $ 2.1 trillion.* If you use exchange rates to do the same conversion for all countries—or at least the largest of them—you can figure out how they all stack up.