Gross domestic product (GDP) is the most commonly used criteria to measure the wealth of a nation. GDP refers to the entire market value of all the final good and services produced by a country in any given year. There are two methods used in measuring GDP; nominal and purchasing power parity (PPP) methods. The Nominal method uses market exchange rates to measure GDP but does not take into account the living standards of people in that country. As such, this ranking does not show an accurate representation of a country’s standard of life. PPP is more meaningful than nominal because it demonstrates the differences in living costs in different countries. However, PPP has its drawbacks since it does not account for international trade and more approximation is required compared to the nominal GDP. For this reason, nominal GDP is used more.
Smallest Economies Worldwide
While most people would imagine that this list is dominated by African nations, they would be wrong. Majority of the economies here are found, again unsurprisingly, in the Caribbean islands. Some of the African countries are Central African Republic (0.00255%), Seychelles (0.00189%), Guinea-Bissau (0.00150%), The Gambia (0.00133%), Sao Tome and Principe (0.00046%) and a few islands off African coasts. The Central African Republic is the richest nation on the list.
According to data from the International Monetary Fund for the year 2017, Tuvalu is the most insignificant economy in both nominal and PPP methods. Tuvalu contributes a paltry 0.00005% to the world economy as per the nominal GDP. According to PPP, Tuvalu shares 0.00003%.
The other four countries that make up the top five on this list are Nauru (0.00015%), Kiribati (0.00022%), Marshall Islands (0.00024) and lastly Palau (0.00040%). Further perspective on how poor these countries are can be obtained by getting the total value of what they contribute to the world economy. Combined, they contribute less than 1% of the world’s aggregate economy which is projected by the IMF at $77.99 trillion (nominal GDP), and $126.69 trillion for the PPP.
Factors Influencing the Smallest Economies
Unsurprisingly, this list is dominated by countries that are small and do not produce a lot of things, if at all. Aside from the fact that they produce little to nothing on their own because of limited resources, there are other reasons why they are so poor. All of these countries have a very small population which translates to limited labor for growth, and they have a massive reliance on foreign aid from other states. Other factors include insignificant capital investments, meager incomes, and problems with the demography. Another thing to consider is that this list is fundamentally unchanged when compared to the 2016 projections and values and are likely to remain more or less the same in the foreseeable future.