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California Economy: Facts & Sectors

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

If California were an independent country, it would have the world's fifth largest economy. In this lesson, we'll discuss California's economy in more detail to understand why it is so large and how it compares to other hefty economies.

Introduction to California's Economy

Accounting for 12.5% of America's population and with nearly 12 million more people than Texas (second most populous state), California's 39 million people make it the most populous state in the United States. A citizenry that large is going to produce, and require, a thriving economy.

Based on gross domestic product, or GDP, the California economy is a $2.6 trillion giant! Gross domestic product is the total value of all goods and services produced in a state, country, or region. An economy this large means that if California were its own country, it would be the fifth largest in the world, just slightly ahead of the United Kingdom. Fourteen percent of the U.S. economy comes from California.

Major Industries

When you think of California, what industries come to mind? For many people, California is the land of Silicon Valley (the technology industry around San Francisco), tourism, agriculture, and entertainment. Would you be surprised to hear that none of those industries is in California's top five?

San Francisco, California
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California's top five industries can be a little misleading, actually. While none of those commonly named industries is in California's top five, that is because in large part, the top five industries are those that exist to support the state's population. Sixty-three percent of California's economy, as measured by GDP, is in finance/insurance/real estate, information, education/health care, government services, or professional/business services.

When you think about how large California's population is and the infrastructure that must exist to support all of those people, the top five industries in California make sense. When it comes to industries that are independent of the California population, tourism/recreation, entertainment, technology, mining/agriculture, and international trade are very important to the California economy. Even more important is the role California plays for those industries.

In the United States, Hollywood and Los Angeles are the heart of the entertainment industry. The same is true for Silicon Valley for the technology industry in the United States. As one of the largest states in the United States with a lot of natural resources, mining and agriculture are also key sectors in California. The temperate climate in California allows for nearly year-round farming and mining. Finally, tourists spent more than $126 billion in California in 2016, which generated more than $10 billion in local and state taxes. For perhaps obvious reasons, California is the No. 1 destination for international visitors to the United States.

An icon of the entertainment industry: the Hollywood sign
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Economic Indicators

Not only is the strength of an economy measured by its size, but also its annual growth, personal income, and employment are important metrics used to assess the strength of an economy. In these areas, California does pretty well.

In 2016, the California economy grew at about 2.9%, slightly higher than the U.S. average, and about the same as the United States' growth. This was the seventh year in a row of positive GDP growth; like other states, California's economy was hit particularly hard in 2009 when real estate bottomed out, the financial crisis was at its peak, and the Great Recession was in full force.

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