The Comparison of Developed Countries and Their Economics: Saudi Arabia and the United States - Case Study Example

Comparative case of G-20 and G-8 economies: case of Saudi Arabia and United s Insert Insert Grade Insert Comparative case of G-20 and G-8 economies: case of Saudi Arabia and United States Introduction The global economy has faced turmoil in the recent years. First, it was the financial meltdown in the United States that has effects on other overseas markets and is still being felt today. The second economic crisis then followed when there emerged a euro zone economic crisis. As a result, there have been massive employee lay offs, early retirements and pay cuts among other austerity measures. Against the backdrop of this economic turmoil is the ever widening rift between the rich and poor among nations. As the rich are becoming richer, there are more people in the developing and underdeveloped nations who are gliding below the poverty line. The United Nation’s definition of the poor indicates that they are such persons living on less than a dollar a day. The more alarming indications that the developed economies classified under the G-8 and the G-20 have their share of economic problems points out the seriousness of this issue. The world’s giant economies are classified under the G-8 whereas the G-20 are the fast growing economies of the world that have continued to be a threat to the developed nations in terms of economic power. The World Bank has made projections to the effect that developing countries or the G20 are likely to reach full capacity in terms of growth and consequently slowing growth from the year 2010’s 7.3 percent to a region of around 6.3 percent annually as from 2011-2013. On the other hand, the G8 will encounter a slowed growth from the lower growth reflected by the 2010’s 2.7 percent to the year 2011’s drop to 2.2 percent. They will experience a rise of up to 2.7 percent in the end of 2012 and a further drop to 2.6 percent in 2013, which shows a fluctuating economy in the giant economies1. If these statistics are to be believed, the developing world is steadily catching up with their developed counterparts even though there are obstacles that they must overcome. This paper examines the macroeconomic indicators of two selected countries (United States and Saudi Arabia) that are in the G-8 and G-20 categories. The period of examination shall be in the last five years and indicators such as the GDP, unemployment rates, GNP, consumer and producer price index and GDP per capita among others will be used to analyze their macroeconomic conditions. United States is slowly picking up from the worst economic downfall in decades. On the other hand, the Arabic nation of Saudi Arabia has not been affected much by the global economic crisis but that does not mean that the citizens of the nation might not be feeling the pinch. The following discussion will bring this clearly. Economic Indicators Gross domestic product (GDP) GDP refers to a country’s cumulative dollar amount of the goods and services produced within a specified period; say one year. It is an essential economic indicator since it reflects a country’s value in production of goods and services. The Economist2 estimates, using a sample of 52 countries, that since the end of the year 2009, the world economy in terms of GDP has been on a decline. This has been attributed to the slower economic growth in the world’s economic giants like the United States and China. To begin, the two countries that form the focus of this paper are far apart in terms of their GDP. The United States has a population estimated to be around 317 million. The GDP for United States has been at a growth path of 2.1 % in the recent months and there are predictions of a “fiscal cliff”3that is in the offing for the United States economy come next year. The Arabian counterpart, on the other hand, seems to be riding the scales higher. The country has a relatively lower population figure of about 29.8 million people. This in effect means that the country is more than ten times smaller in population than its North American counterpart. The indicators of the country’s economy in terms of GDP surprisingly show a wider gap compared to that of the United States despite the two countries being in different categories of the G8 and G20. Saudi Arabia recorded a growth of 4.3% in the recent months, which is double that of the United States in the same period4. This implies that in terms of the gross domestic product, the Arabian country is at a faster economic growth than the United States. This can be however attributed to other factors such as the disparity in population. In terms of the value assigned to the two nations’ GDP; the purchasing power parity (PPP) can be used. The PPP is the currency weight assigned to a certain rate, which in this case is the US dollars. The PPP for Saudi Arabia is at $26,170, which is almost half that of the United States which is at $51,5255. This is a surprising angle of economic dynamics that shows why one indicator is not enough to gauge whether a country is on a healthy economic growth or not. GNP, GNI, consumer and producer price index and GDP per capita To bring the comparison into more focus, therefore, it is important to look at the two countries’ other indicators. To begin, the GDP per capita differs with the GDP because it measures that growth in terms of assigning value to each individual of the whole population sometimes referred to as the income per head. The Economist puts the per capita of United States and Saudi Arabia at $51,525 and $21,040 respectively6. In effect this means that the PPP for United States is at par with that of its GDP per capita whereas that of Saudi Arabia is slightly higher than the country’s per capita income. This shows that despite the G20 nation showing a higher GDP figure, there is likelihood that the gains have not been equitably spread or felt among the country’s 29.8 million people. Next, the GNP refers to a country’s income derived from both foreign and local enterprises. It shows how a country’s nationals have invested in foreign and local markets; thereby classifying income from offshore investments as a country’s actual income, which can be another good indicator of how citizens are fairing on economically. The gross national income (GNI) is the actual reflection of this indicator because it goes on to less the country’s income in the domestic market accrued by foreign nationals. The World Bank estimates that the GNI for the United States and Saudi Arabia are at 15.1 trillion US dollars and 500.5 trillion USD respectively7. While the United States has seen a gradual increase in its GNI; the Saudis have seen a more radical increase in the country’s GNI. This may imply that the latter has had a good investment period in the last five years compared to their United States counterparts. The consumer price index, on the other hand, is a measure of the price changes in certain commodities or services offered to consumers. It shows the prices paid for select commodities in the market and therefore indicates the price relativity. The world Development Index (WDI) 2010 estimated a figure of around 136 USD for Saudi Arabia and 115.2 for the United States in the year 20118. Furthermore, the United States Bureau of Labor Statistics indicates a gradual rise of the CPI in the last four months in the year 20129. This means that even though there is an increase in CPI in the G8 country, the level of prices are still relatively lower compared to those of the Arabian nation of Saudi. Human Development The human development approach proposes to look at economic improvement not only by the use of indicators discussed above but by the evaluation of the population’s general welfare. The human development index is therefore the measure that is applicable for the purposes of this evaluation. The HDI therefore is a summation of the average individual nation’s attainment of certain benchmarks of human development. These achievements have been categorized into three basic areas of human development that include longer and healthier life attainment, proper education, and good or proper level of living standards. Statistics by the human development report 2011 by UNDP indicate a brighter future for the world’s population. The global average HDI is said to have increased by a massive 18 percent between the year 1990 and 2010 reflecting a total of 41 percent since 197010. This means that there have been improvements in the areas of life expectancy, enrollment in educational institutions, literacy levels and income earned within that period. To indicate how this improvement was cross cutting, the report states that of the 135 countries sampled in the survey for the year 1970 to 2010 that represent a larger proportion of the world’s population (92 percent), a paltry three nations had a lower HDI in 2010 than in 197011. The statistics are a clear indication of the ever improving living standards and literacy levels that have been influenced by rapid globalization. On a more specific point, it is important to look closer on the figures of the selected countries. Both of the two nations have shown improvements in the HDI measure. The Saudi Arabian HDI is at 0.772 whereas that of the United States is at 0.94412. This indicator therefore still puts the United States as an economic giant over the Arabian nation. It is also important that we look closely at the categories of the indicator so that more light is shed on how the people of these two nations are fairing on. For Saudi Arabia, the HDI rank in the world is 56 and it has shown an increase in the HDI from the previous 0.751 rating in the year 200713. Apart from the ranking, life expectancy ratio at birth in the country is put at 73.9 years and the country’s health levels are the highest among other factors in the HDI because it is even higher than the actual rating of HDI14. Looking at United States, which ranks at a dismal 4th position having been previously a contender in the top position, there is a slight drop in the index from the previous five years with recent figures indicating a value of 0.889. Going further, from the ranking, life expectancy ratio at birth in the country is put at 78.5 years and the country’s educational levels are the highest among other factors in the HDI15 compared to that of Saudi Arabia. The data therefore indicate an interesting perspective in the two nations. While the United States leads in the education levels, the nation of Saudi Arabia can boast of a higher rate of health among its population. In effect, the United States boasts of 12 years of schooling compared to Saudi’s 7 years. Using this index therefore, it is right to state that the United States is still a leader in the world’s economic powerhouse and that Saudi Arabia still has a long way to reach the top. Conclusion It is clear that the two select nations of this paper are worlds apart in terms of economic development as shown by the indicators explored in the whole discussion. The nation of Saudi Arabia is among other economic giants that are upcoming even though statistics have shown that the rapid increase in their economic prospects have been slowed down by the global economic turbulence in the recent years and especially after the economic slump in the United States from the year 2006. The World Bank indicates that the volatility of external financial markets has been a challenge to the economic advancement of the individual country economies and cites the Euro zone crisis as one of the current anomalies in the global financial markets that has affected the overall growth prospects of the world’s economy16. The developing economies have however been able to rapidly advance in terms of economic growth as seen in the case discussed above. The World Bank projects that they will continue to grow at almost a triple rate compared to the nations in the developed world at the rates of 5.3% and 1.4% respectively17. Finally, it is important that the developing nations take this advantage and continue in the growth path so that the economic outlook of the globe is improved. Bibliography The Economist. “World figures: countries. The United States/ Saudi Arabia.” The Economist, 2012. Accessed on 23rd November, 2012 from www.economist.com The World Bank. “World Bank / Global Economic Prospects.” World Development Report, 2011-12. Accessed on 23rd November, 2012 from web.worldbank.org U.S Bureau of Labor Statistics (2012). “Report on CPI.” U.S Bureau of Labor Statistics, 2012.Accessed on 23rd November, 2012 from www.bls.gov/cpi United Nations Development Program. “Human Development Report.” UNDP, 2011-12. Accessed on 23rd November, 2012 from www.undp.org Read More