07/20/2010 06:08 pm ET Updated May 25, 2011

BRIC and Beyond: Economies That Will Shape the 21st Century

This is the first in a series concerning BRIC and Beyond about the economies that will shape the 21st century.

Let's start with the basics, BRIC is an acronym for Brazil, Russia, India and China that was coined by Goldman Sachs. In that paper, the authors argued that the combined economies of these four countries could exceed the combined economies of the current richest countries of the world by 2050 based on long-term economic projections. BRIC countries are sometimes mentioned in combination with N-11 countries, known as the "Next-11". This Goldman Sachs-developed list includes Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam. This group reflects a broader set of countries whose economies are expected to become more important on the global stage in the 21st century where the theme in this set of countries is their large population sizes.

Combining these two lists, Goldman Sachs has proposed 15 candidates for countries whose economies may be major players in the world economy by 2050. To make this discussion more meaningful, we will need to decide how we should judge the importance of an economy. Here's where the issue of having quality metrics appears: the most commonly used measurement of an economy, Gross Domestic Product, is highly imperfect. Many articles have discussed the issues with this measurement, including the fact that it ignores critical items such as volunteer work, unpaid domestic services, black market/informal economy, bartered services, sustainability of growth, income disparity and externalities like environmental degradation. The use of the GDP measurement often drives counter-intuitive results such as (1) when the GDP of a country increases while the typical citizen (as measured by median income) is worse off, as has been the trend in the US or (2) where GDP increases because forests are being cut down for lumber but there has been no accounting for the loss of nature. In spite of its imperfections, GDP is still the most commonly cited metric for national economies and so we will use it for lack of a better readily-available measurement.

Before we start considering projections of future GDP, let's look at the present. According to the World Bank, in 2009 the US had a nominal GDP of about $14.3 Trillion. Rounding out the top 12 were Japan ($5.1 Trillion), China ($4.9 Trillion), Germany ($3.3 Trillion), France ($2.6 Trillion), UK ($2.2 Trillion), Italy ($2.1 Trillion), Brazil ($1.6 Trillion), Spain ($1.5 Trillion), Canada ($1.3 Trillion), India ($1.3 Trillion) and Russia ($1.2 Trillion).

There's a lot of insight that we can draw from these numbers. For example, the fact that the US GDP is 3 times that of the next largest country is a reminder of the enormity of the US economic engine. In fact, if you polled most Americans on the street, few would have guessed that the US GDP is larger than China, Japan and Germany combined.

The next major observation is that this list is a mixture of different income class countries (according to the World Bank): (1) Upper income countries like the US, Japan, Germany, France, UK, Italy, Spain and Canada (2) Upper middle income countries like Russia and Brazil and (3) Lower middle income countries like China and India. Many Americans and even travelers to Shanghai or Beijing may be surprised that China is considered a lower middle income country. While it has examples of tremendous wealth in its major cities, there are hundreds of millions of Chinese struggling in sweatshop-condition factories and suffering in rural poverty.

In order to better understand the list of countries with the largest GDP, it is useful to disaggregate GDP into two components: the total GDP of a country is equal to the population of the country times the GDP per capita. Countries like India and China have relatively low GDP per capita's but have very high populations. Countries like France, UK, Italy, Spain and Germany have high GDP per capita's and populations ranked 14-27th in the world (I'll call them "upper middle populations"). The US and Japan are unique in that they are the only upper income countries with a population in the top 10 in the world (US has the 3rd largest population in the world, about 1/4th that of China).

This disaggregation is going to be important because countries that will move the world economic needle need to have large populations as well as growth in GDP per capita. For example, Singapore is a major hub for finance, biotechnology and is a wealthy country with very fast economic growth, yet its small population and physical size will always limit its global impact.

In the next article, we'll start looking at economic projections as it relates to BRIC, N-11 and other countries that perhaps should have been on the list.

Note: For those who are interested, please see this video by Nobel Prize winner Joseph Stiglitz where he discusses the limitations of GDP