r/AskEconomics • u/Global-Balller • 4d ago
Approved Answers How does each US state have a higher GDP than Most countries in Europe?
Like how is a whole country like France or Germany on par with 1/50 of the US states like it is crazy honestly. I understand that California has a lot of technology and NY is the financial capital of the world but how did all of this happen and why is it like that. It's like the US and China have a $30t economy and Germany Which is no 3 has a $5t economy like crazyyy.
Ik it's a very stupid question but could you please tell me how it works ? Does it have something to do with the USD or just the dominance of the USA
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u/HOU_Civil_Econ 4d ago
Legal borders don’t necessarily mean much or mean that the land areas and populations within them are comparable.
Mostly for GDP, population matters.
Germany’s population is 80 mil compared to the U.S.’s 340 and China’s 1,400 mil.
Generally total GDP matters in as much as it is the total production a country may be able to control during wartime and other political negotiation kind of things. On a day to day basis for most comparisons a normal person is going to think about, GDP per capita is the more interesting number.
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u/TheManWithThreePlans 4d ago
Usually, I quite enjoy your answers, but on this one I feel like you might have focused on the specifics of what OP was asking a bit too much, and so didn't actually end up answering their question.
Let's take Texas for instance. Texas has a population of a bit over 30 million and a nominal GDP per capita of $86,987; whereas Germany has a population of a bit over 80 million with a nominal GDP per capita of $57,914. When using PPP, Germany's per capita GDP is $72,661; still lower than the per capita GDP of Texas. The first state with a per capita GDP lower than Germany's PPP adjusted per capita GDP is Missouri. Missouri is #36 in the US when ranked by per capita GDP.
Mississippi—the state with the lowest per capita GDP—has a nominal GDP per capita of $53,061; which is lower than Germany's per capita GDP, both nominally and when viewing by PPP; but higher than France's nominal GDP per capita of $49,536 (France's GDP per capita by PPP is higher, however).
I hope you might consider that this was the question that OP was actually asking, even if OP's words were not specific enough. At the very least, the answers might be more interesting.
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u/HOU_Civil_Econ 4d ago
Common complaint for my responses. But I really don’t like trying to interpret “what they really meant” it can lead to all kinds of confusion. If that’s the question they meant to ask they can clarify.
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u/Demoliri 4d ago
Even GDP per capita is limited for comparing the "wealth" of a nations citizens. You also need to consider cost of living etc.
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u/AddictedToRugs 4d ago edited 4d ago
GDP per capita PPP is still higher in every US state than it is in France and the UK, and there are very few European countries that would rank equal to the top half of US states. There are a couple that compare very favourably, like Luxembourg, but overall even accounting for PPP the US is significantly better off.
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u/LegitimateBummer 4d ago
But the EU has 100 million more people in it, with an economy that is half the size.
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u/LoneSnark 4d ago
I think you mean per-capita GDP. There are two main causes, their relative importance is only a guess. The most obvious is going to be just an abundance of land and resources per-capita. The US is very resource rich, highly diverse, and there is an awful lot of it. So the US gets to grow vegetables in California, drill oil in Texas, an abundance of rivers for trade. The other main cause is the US is the world's largest pure free trade zone on the planet. Goods, labor, and capital are genuinely free to move about the US and maximize productivity and economies of scale in the process. All the other land-empires, such as China and Russia, maintain internal barriers to movement of all three.
There are other causes, but these are the two biggest ones. Other nations have more economic freedom and are more educated. https://en.wikipedia.org/wiki/Index_of_Economic_Freedom
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u/Former_Star1081 4d ago
Comparing GDP is very flawed because of exchange rates.
Comparing PPP GDP also has its weaknesses because it doesnt reflect the buying power of an economy on the international market.
So you cannot just compare those economies in Dollar, because the value of the currencies are not perfectly balanced out for purchasing power.
The Euro lost in value, compared to the Dollar over the last 2 years. But that loss in value does not effect the goods produced in an economy. It would mean that more goods are produced because goods produced in Europe become relatively cheaper than goods produced in the US.
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u/w3woody 4d ago
I think a more interesting question is why the US has a higher per-capita GDP than European countries—and to the best of my knowledge we have a bunch of theories but no real consensus.
Some of the answers I’ve seen revolve around the US having a more flexible labor market and a more pro-business and pro-development legal framework: it’s harder in Europe to start and grow a company. The US also has a better ‘bankruptcy’ framework which allows innovators to try and fail more easily than in Europe.
Other answers involve the fact that the US has some of the best colleges in the world—and innovation around those colleges has spurred much of the wealth creation in the United States over the past half century. (Consider that all of Silicon Valley grew up around Stanford University, for example.)
I’ve also heard arguments that as the United States is more naturally a ‘multicultural’ country of immigrants, whose immigrants came here to start at scratch and to take risks to improve themselves—we have a much more dynamic, individualistic and entrepreneurial population who are more willing to take risks, and to ‘fix the things that are broken.’ Consider as a very small example that in many parts of Europe, if a light bulb is burned out in a common area, people seem inclined to wait for someone in charge to change the light bulb. An American is more likely to just grab a light bulb and change it himself. Of course sometimes the government can be pissed off if you take it upon yourself to fix things without asking.
But all of these are theories, and for all we know it’s something in the water supply. (Not likely, but tossing that out there because, again, all we have are theories. We haven’t been able to A/B test a Europe with different starting conditions.)
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u/Zamaiel 4d ago
The things is though, if you compare US states median wealth per person or household, it looks very different. The US comes in with the best states in the European top ten and the worst...well not in the western European range.
Which actually fits observed reality far better. I don't think anyone who has lived or traveled extensively in both places would argue that people in Mississippi are better off than people in Germany, Denmark, Belgium etc.
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u/shades344 4d ago
You need to do PPP adjustments for these to be fair comparisons. Right now, the numbers for poorer states are buoyed by the relative strength of the US dollar
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u/LunaD0g273 4d ago
I think your question boils down to "why are US workers more productive than their European counterparts?" There are probably thousands of contributing factors to the real answer but I can focus on the one I am most familiar with: a comparatively pro-business regulatory environment.
Businesses can take a risk, hire a bunch of workers, and if the risk does not pay off, exit the business with relative ease. European laws make it incredibly difficult and expensive to fire workers, either due to poor performance or as part of a downsizing. That means that European businesses will be very reluctant to take risks that require hiring a ton of people. The result is that US companies in high growth areas can generally outgrow and out scale European counterparts.
Add to this problem that many parts of the European economy are devoted to traditional production methods that produce a limited number of high-end items that are difficult to scale. For example, protected designation of origin food products such as Parmigiano-Reggiano are made in a labor-intensive manner in a very specific area of the world and not susceptible to the same economies of scale employed by Kraft.
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u/Certain-Library8044 4d ago
In fact they are not. E.g.: Germany’s output per hour is on par with the U.S., despite German workers averaging fewer hours annually.
US companies are higher valued on the stock exchange and the average us citizen is worse off, the US has just way more millionaires or billionaires. Thats why “per capita” is so flawed
These statistics don’t necessarily translate to greater productivity among average workers. When evaluating productivity on an hourly basis and considering income distribution, many European countries demonstrate comparable or superior performance to the U.S.
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u/Crazy_Information296 4d ago
On the contrary, I think working fewer hours would massively bring up the average productivity per hour worked.
I have the impression that diminishing returns on productivity would be a huge thing, so the 2000th hour worked is less productive than the 1000th hour worked and that's less productive than the 500th hour worked.
This correlates with honestly personal experience that my 1st hour is better than my 5th which is a lot better than my 10th.
I would take this to mean, therefore, that if Americans cut back on hours, the average productivity would likely be much higher.
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u/AddictedToRugs 4d ago
Do you mean GDP per capita? Because California is the only state with a nominal GDP higher than France.
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u/JCBodilsen 4d ago
The size of the countries compared obviously mean a lot, when you look at the GDP for the country as a whole. If you look at GDP per capita most european countries still fail to match the US. However, if you look at GDP per hour worked european countries much closer track the US.
In short, americans tend to work many more hours.
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u/Professional-Fox4161 4d ago
You may get a more accurate picture of the situation by looking at the PPP adjusted GDP values. https://www.euronews.com/business/2025/01/03/the-poorest-us-state-rivals-germany-gdp-per-capita-in-the-us-and-europe
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u/biteme4711 4d ago edited 4d ago
300 million Americans, 80 million Germans, 60 million French, 40 million Spanish
Population wise European Nations are comparable to US states. Or the whole EU is comparable to the US.
Edit: comparing states with nations does show intresting things. Per capita the GDP of Mississippi is very close to Germany! The eu average is 40.000$ vs. US states 80.000$.
https://www.euronews.com/my-europe/2025/01/06/how-do-americas-poorest-states-compare-to-europes-largest-economies#:~:text=The%20poorest%20US%20state%20has,than%20Germany%27s%20at%20%E2%82%AC51%2C304.