My Geography textbook defines the size of an economy as:

Size of economy is measured in terms of value of goods and services and grows over time. This is caused by increase in population, improvement in income levels, advancement of technology and other associated factors.

I found these statements to be a little iffy. I don't understand how things like advancement of technology could possibly make the economy larger in size. I do get that they could give the secondary or tertiary sector a larger chunk of the economy, but could it make the economy larger as a whole?

The Netherlands, for an example, has just as elaborate an economy as any other country; with possibly the same factors acting on it. However, even with all the advancements in technology and increased income levels, it is no where as gigantic and mammoth (we are talking size, remember?) an economy as India or China when it comes to sheer scale.

I thus concluded that this statement was erroneous. Am I right in propounding that the size of an economy has nothing (absolutely nothing) to do with the intricacies and coming-together of processes, and solely to do with the scale or largeness of it?


1 Answer 1


Your book is correct.

To quote it

Size of economy is measured in terms of value of goods and services.

Suppose the Netherlands had its current population of 16 million people but only 14th century technology. I hope you'll agree that the value of whatever they produced would be significantly less than the value of their current production.

Another comparison:
The Indian economy is currently smaller (in terms of value) than the US economy despite the difference in population. The reason for this is that the US has much more capital in advanced technology.

To address the question whether value is a good indication of size is good question:

There are several arguments for this. Imagine that a country produces something that it consumes very little of (e.g. cash crops). In this case they will not care at all about the weight, volume etc. of their production, they will want to know how much they can sell it for so they can import other things. I would say in such a case value is much more relevant then other measures.

Another example:
Imagine that the A pill immunizes you against malaria for a day and the B pill immunizes you for a year. Would you say a plant producing 100 A pills produces more than a plant producing a B pill?
I would argue in some sense it does, in some sense it does not. There is no absolutely clear method of comparison. For reasons of international trade, value is used. Is the word size confusing? Perhaps. But not overly so.


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