South Korea may soon be richer than Japan
FOR years, Japan was Asia's richest and most powerful economy. It was the first Asian economy to industrialise, and the emerging Asian tigers—Hong Kong, Singapore, South Korea, Taiwan and later China—merely followed in its tracks. Now, however, Japan is steadily being overtaken. China's economy is now bigger than Japan's, but less noticed is the fact that Asia's so-called newly industrialised economies are becoming richer than Japan. Most economists reckon that the best way to compare living standards is to take GDP per person measured at purchasing-power parity, which adjusts for differences in the cost of living in each country. On this gauge, Japan was overtaken by Singapore in 1993, by Hong Kong in 1997 and by Taiwan in 2010. But the most humbling re-ranking will be when South Korea becomes richer than Japan. The latest forecasts from the IMF suggest that this could happen within five years. That would be a remarkable turnabout. In 1980 South Korea's GDP per person was barely a quarter the level of Japan's. See full article.
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Go South Korea.
Korea has developed very quickly compare to other rich countries.
And I am not Korean, but I love Korean culture and how Korean people can have strong bond because of their love toward their country.
And i believe that Korea is going to be richer than Japan soon because Korea is still developing more and more but Japan does not have significant prgress.
I fully agree with you. Korea is going to progress more than past i think.
I fully agree with you. Korea is going to progress more than past i think.
I fully agree with you. Korea is going to progress more than past i think.
This measure called purchasing power parity sounds like some ridiculous statistic invented to be able to make claims such as this one. I have been to all of the countries mentioned in the article for work and pleasure, in no way would Japan be considered less wealthy than most of them based on this measure. This PPP leaves out the value of the assets and talents of the nation as a whole. The decades of investment and other factors such as what can be purchased there. The fact is Japan has trillions in tangible assets, trillions in an economy, Trillions of the equivalent in dollars, it has the laboratories, factories, talent and etc all far exceeding the other nations. Not to imply the other nations mentioned are not also wealthy but this PPP measure is just not right. Based on this PPP the richest nation would be one where the average salary could be 10 dollars a month but if he can buy everything for a penny, this nation is somehow wealthy.
How about valuing the nations based on everything that makes up the nation. This was attempted with America, valuing everything from national resources, buildings and assets, money, ideas, even the time for labor of each person. Perhaps the number of around 390 Trillion was off and could be more refined but this is the measure of the wealth of a nation and I suspect Japan will be on the top when compared to other Asian nations based on all measures of value.
GDP is a flow variable; your entire post has to do with stock variables. Apples and oranges.... your grouch should not be against the method of PPP, but the use of GDP per capita as a measure of national wealth.
You should calm down and read Sir Partha Dasgupta's 20-country study of national wealth or the "Free Exchange" blog post on this report here: www.economist.com/node/21557732
Whether GDP is a correct measure of wealth or not is not an important issue. Fact is South Korea has become very rich in last few years. The big question is how other economies like India can learn from their experience. Economist should write about the secret behind their growth.
I do NOT think that GDP by PPP figure is ideal and it seems to be inaccurate when it is used for comparing countries. Japan is said to be a decade more advanced than the western world in infrastructure, adaptation of high technolgogy, nano-tech, robotics etc and Japan is certainly way more advanced than S.Korea and Taiwan despite Taiwan's GDP/capita by PPP is higher than Japan's. Japan is way more cleaner and has higher living standard than Taiwan's. I also do not believe S.Korea would any time soon surpass Japan's GDP/capita by nominal evaluation although when one visits this next door country to Japan, S.Korea looks pretty much similar to Japan in outer facade, but realistically S.Korea has many major catch up to do with Japan. It seems to be that Japan is the utmost advanced country among the 3 countries; next advanced one is S.Korea and then the 3rd is Taiwan - hence GDP by PPP to naked eyes is not trust worthy way to make comparison b/w countries.
Japan / Taiwan / Korea all manipulates currency to some degree, though relatively speaking it's generally Japan > Korea > Taiwan, the Yen's volitility is the highest of the 3 in shorter runs where as the NTD is generally the most stable (a flucuation of even 10% in a year or so is alerady huge news in Taiwan, where as the yen quite often fluctuate in teh 25% range).
Taiwan has the lowest nominal income of the 3, though it's living cost is also the lowest, these things are difficult to fully explain even for a very professional economist though, Taiwan has some subsidies, though only agriculture seem to be abosalute unmovable but that's far more out of strategic concern (in case we'er ever blockaded by China for example) than economic onces, still Taiwan's agriculture variety is quite awesome especially considering the limited land it can use.
Taiwan has recently removed all gasoline subsidy and though it suffered a temporary 10% hike at the pump it has feel back to the same level as before the removal within 3 month. though obviously international crude prices falling like a dead bird helped there.
Still, Taiwan and Korea's economy are far from perfect , Korea has managed to prop up huge global firms but it's comming at the expense of many common people and one also wonder if they're putting wayy too many eggs in one basket, on the other hand Taiwan is kind of the opposite, government have been relatively passive and it has hurt many Taiwan's company as well since now Korea has so many more FTA etc. also, Taiwan's wages have been pretty stagnate as well for over a decade, though it's inflation have been relatively in check espeically by world standards.
Sony Reader costs more than double the price in Japan than it is in America thanks to trusty ole Japanese protectionism.
Agricultural products are also way cheaper in Taiwan, albeit higher population density supposedly mean competitive disadvantage. I presume there's a legacy of subsidy and food security concern which dates back to cold war era for the tiny island.
President Ma Ying-Jeou promised to triple the people's wages, I guess he didn't mean real wages, but nominal wages, by coordinated inflation. Figures of real wages will probably matches nominal wages more in the future.
ECFA agreements signed with mainland China should puts Taiwan into de facto free trading partners with other Asian economies, also lessening political risks. Somehow inflation will gear Taiwan better for competitiveness in a freer trade zone. I've totally forgotten my macroeconomics, why is this? I'm getting too old and forgetting my old curriculum, pretty soon I'll end up like those DPP supporting idiots.
What we Chinese can learn from this change?
ibmxt
"South Korea may soon be richer than japan" means S.korea may soon be richer than Great Britain too.
Well, GDP somtimes mislead. If say, there is a new car factory in small town, GRDP in that region will be so high. But does that really mean each individual "earn" as much as its "productivity" speaks? It is not. For that reason, $40,000 in GDP does not mean $40,000 in wage. Also, it doesn't mean a citizen living in a country with $40,000 GDP/cap earn twice as much as a citizen in a country with $20,000 GDP/cap. But, what it clearly says is that "high GDP per capita mean somewhat higher average wage. Nothing more than that." GDP at Market Exchange Rate is still not correct since any fluctuation in exchange rate can create huge change. For instance, if you trace back Austrailia's and Japan's past history, their GDP per capita had not been increasing in terms of their national currency that much but in terms of USD, the increase is so huge. Japan is an extream case as their GDP per capita has been "decreased" since last year in term of Yen but has been increased in terms of USD. PPP is hypothetical but so far it is better when it comes to "measuring standard of living". Of course, it is true that strong exchange rate means strong economy but "not always the case". In some cases, foreign reserves just flow in into some countries and those countries gain exchange rate value. Or, some countries have no choice but to devalue for whatever reasons. Each country has different development style so you cannot really blame "who does what". Better comparision will be thus "average wage" both in terms of nominal and PPP.
Nominal Japanese wage ->
http://www.averagesalarysurvey.com/article/average-salary-in-japan/15224...
3,857,724 JPY (46,800 USD)
Nominal South Korean wage -->
http://www.averagesalarysurvey.com/article/average-salary-in-south-korea...
37,521,000 KRW (33,000 USD)
Nominal Taiwanese wage -->
http://www.averagesalarysurvey.com/article/average-salary-in-taiwan/0819...
840,750 TWD (28,500 USD)
In terms of PPP, they are nearly the same.
So this clears up everything I guess.
My reasoning for this is very simple,whenever you are the leader,you run this risk on being overtaken,there are always followers who watch each step and try and take all your best moves and try and avoid your mistake,this is very similar to the incumbency factor in political elections.What needs to be done t protect yourself is to have a very robust domestic consumption and the domestic consumption and international trade should balance out.also i think all the asian economies mentioned have benefitted from peace in the continent in these countries.
The Economist is having a technical issue - same article 2 different comments section.
I wrote in the other comments sections:
PPP is not a good measure of wealth. The quality of the products in different countries are not taken into account. A BigMac in the US is not the same as a BigMac in Africa.
And McDonalds is much better in Japan than in the US.
Don't like junk food normally, but McDonalds Japan does a decent job...
"PPP is not a good measure of wealth."
This is well true!
"A BigMac in the US is not the same as a BigMac in Africa."
I don't think BigMac is any part of PPP translation tables. Rather the problem is with the fact that better developed countries have different consumption patterns than under developed countries where food and clothings are the major items. Yes, the quality of products are also different.
Norminal GDP is more accurate measure than PPP. It also shows competitiveness of industries!
Well, you said NOminal shows competitiveness.. I don't quite agree on it. It also means that any overvalued economy will just look better than it really does.
I am quite curious what this means for the average man on the street of the nations concerned. For all I know, the people in these "newly industrialized economy" are stuggling on a day to day basis to keep up with the rising cost of livings. Does it mean the richer nation citizens can afford or purchase more goods and services? Or it is just a metric that calculates the total economy output produced by the country as a whole divided by its population head count? In that case, a caution of note the chart may not truly reflect the true economical well being of the NIE people. You still need a more fairer and egalitarian system to distribute wealth to achieve that goal. We should be critical with interpreting data.
I do not like the "distribution of wealth" part. It implies you just get money from one group and give it to another. That's not right. That's unfair. We need a better term for what you really mean.
"distribution of wealth" is a techincal term used in statistic to describe how a nation or society fare in achieving equality among its people.
http://en.wikipedia.org/wiki/Distribution_of_wealth
It has to do with the system policy, taxation, and primarily political values and belief. with good policy it is possible to take from the better off and give to the less abled yet still keep the rich and abled motivated. And for argument sake there can be no absolute fairness in any society, past, present and future.
All I was saying is we need a better term for it.
The reason why Taiwan's per capita GDP based on PPP has already surpassed Japan is things are lot cheaper in Taiwan. Unlike the Japanese and South Koreans, Taiwan does not protect its agriculture as heavily as those two countries. Take for example price of rice in Japan is 6-7 times higher than in Taiwan. Fuel is also 70-80% more expensive in Japan / South Korean than Taiwan.
http://www.kshitij.com/research/petrol.shtml
http://taiwantoday.tw/ct.asp?xItem=188705&ctNode=413
Again this feeds into higher cost of other goods.
"Taiwan does not protect its agriculture as heavily as those two countries."
That seems irony and contradictory! When things are such cheap, how Taiwanese can be richer than Japanese? The reason is the currency manipulation to maintain price competitiveness. Taiwan is hugely rich country with lots foreign reserves. This alone should made Taiwan's PPP much lower than nominal per capita GDP! We see complete opposite. If you look at nominal per capita from IMF data;
- Japan 45,920
- Korea, South 22,778
- Taiwan 20,101
Japan is more than twice that of Taiwan. Taiwan is even lower than that of South Korea. Given that South Korea is a major debtor nation, lower nominal is understandable due to undervalued currency. But Taiwan should be opposite to make sense!
Many Sokos have frightened themselves at the looming prospect of Taiwan hi-techs combining the advantages of the Mainland's inexhaustible cheap labor and vast market.
The power of demographics! But the extrapolations may be wrong according to:
http://www.cfapubs.org/doi/abs/10.2469/faj.v68.n1.4
which was also highlighted by the Economist in a previous blog
The Asian future will belong to the world fastest PPP rising population like India, Bangladesh, Pakistan etc.
Ironically, Japan is IMF’s largest funder.
And the United Nations'. Frankly I wish they would stop it!
"But the most humbling re-ranking will be when South Korea becomes richer than Japan. The latest forecasts from the IMF suggest that this could happen within five years."
I doubt that simply because imcompetent IMF says so. IMF tends to be wrong all the time. There's high probability that this will be wrong too!
Even though Taiwan's PPP is higher than that of Japan now, her nominal per capita is much lower than that of South Korea! Does this tell you anything? The simple answer is currency manipulation through massive gold purchase. Small economy holding lasgest volume of gold. If you consider this, I don't think the projections in the chart is correct.
Never mind South Korea --Japan will really start to worry if North Korea begins to catch it up!!
It's more likely that China will start to worry before Japanese does.
So let’s play the same numbers game:
GDP/capital PPP: $
Country A: 39639
Country B: 38061
Country C: 37897
So by the same logic, countries A and B are wealthier than country C. Well, A is Ireland, B is Iceland. C is Germany.
See how easy these numbers (assuming they are even accurate) can be manipulated to support whatever argument one wants to construct.
"See how easy these numbers can be manipulated to support whatever argument one wants to construct."
No not at all, becuase you didn't manipulate any numbers and neither did the economist. This article clearlly says "Most economists reckon that the best way to compare living standards is to take GDP per person measured at purchasing-power parity". They aren't saying the country is overall the richest, they even mention China's economy is bigger. Not sure where you were going with your comment.
You obviously have a problem with reading comprehension.
"FOR years, Japan was Asia’s richest and most powerful economy. It was the first Asian economy to industrialise, and the emerging Asian tigers—Hong Kong, Singapore, South Korea, Taiwan and later China—merely followed in its tracks. Now, however, Japan is steadily being overtaken. "
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