at its current rate, south korea will most likely go through its own version of the lost decades before managing to surpass japan's gdp per capita. The problem is that SK follows the same economic model as Japan and has a faster aging population than Japan does. Their property bubble is also at the brink of collapse from the look at recent development especially in regards with the cheonse market. At the end of the day, the definition of insanity is doing the same thing over and over and expecting different results
There is a risk that you are right and many experts have worried about this for a while. And yet, Korea has done well. Despite lots of similarities, there are many key differences. The interesting question is why it has been able to avoid Japan's fate--at least so far--despite the similarities.
The difference with Japan is that SK hasn't experienced a popping of their real estate bubble like Japan did and do remember that Japan's economy still grew until 1993 before they started to stagnate. You could also argue that SK today is similar to Japan in the late 80s and 90s as while their demographic problem is beginning to rear its ugly head, it still hasn't reached a point to significantly affect its economy at least for a while. This decade was always going to be the last hurrah for the SK economy before they start shrinking and maybe experience a worst fate than Japan as they I would argue that they followed Japan's footsteps too well and at even faster speed resulting in more problems down the line. Hence, I am skeptical that SK can maintain its current growth rate or even surpass Japan's GDP per Capita ( at least for more than a couple of years before their economy inevitably shrinks).
The question now is for how long can that hold that lead. There are also several factors in calculating "real" GDP and most articles I found still mentions that Japan is still leading in GDP per Capita
Do note that most of of SK's GDP is held by a few companies run by few very rich families. If you think that Japan's Keiretsu is bad and is stifling innovation, then multiply it by 10 and you have the korean chaebol. The reason why those companies still seem innovative and why they seem more agile in adapting to new technologies is because they have lots of resource from korea's rapid growth from the last couple of decades to spend on R&D. If history is anything to go by and korea experience an economic crisis like what happened with Japan, then the resources those company once had will decrease significantly and they will inevitably become more conservative eventually falling to stagnation. The same engine that drove korea's economic miracle will become a big burden on their economy and makes it significantly harder for them to escape stagnation
It's probably too anecdotal, not academical, but I happen to be in Seoul this weekend for the first time in... 20 years. I can feel that the life in Korea (especially in Seoul) is as good as in Japan. The price level is still slightly below Japan's level, but the lifestyle is almost identical (or could be better). I can easily foresee that Korea's nominal GDP per capita can be higher than Japan's in the next few years. (it also depends on how JPY will behave, too)
Maybe japanese companies opening factories overseas have the biggest responsibility for this. They have lost jobs in Japan , decreasing income also japanese GDP.
Are there deeper causes for this that go beyond technical/policy reasons (e.g. keeping the yen weak for a long period of time)? Is there something wayward about Japanese society?
I don't think so. This is still the same country that had the "economic miracle" from the early 1950s through the mid-1970s. I find that institutional and historical explanations work better than cultural ones.
It is difficult to understand how the adjustments are done. GDP per capita reached 35,000 USD last year and is here at 42,000. Can you share the details? Did you adjust also the Japanese one with the same methodology? Details would be interesting
I used a data series from the world Bank to make it consistent across countries and years. Please tell me where the $35,000 figure came from. The standard method is called Purchasing Power Parity (PPP). If you simply take a country's GDP and convert it to dollars at each year's exchange rate, the measure of a country's GDP will gyrate up and down with each fluctuation of the currency. PPP starts with figuring out for a base year, what is the currency rate that make a shirt, or loaf of bread, or machine cost the same in each country? Because we want to measure how many shirts, loaves of bread and machines each country can produce and consume each year compared to others. Once we arrive at that PPP rate, we convert GDP for each country at that rate for all the years in the series. That we can tell how much the productive capacity and living standard for each country is changing year-by-year,and also how it performs relative to other countries. I hope this helps clear things up.
USD 35,000 average was published by Bank of Korea end of January (there was an article in Nikkei Asia I think). I understand the PPP adaptation for Korean salary, but same exercise should be done for the Japanese - which would lead to inflate the salary to take in account the Japanese deflation.
I thought as much. This raises some interesting questions about the importance - or lack of importance if you will - for the long run theory of productivity growth that is basically driving the slow steady falloff in per capita income growth for Korea and earlier Japan. It would seem to me that the financial sector corrections are transitory, not permanent.
Carl, I'm not exactly sure how you see the interconnection between financial crises and the longterm trend that, as countries converge to the leading countries, their growth rate slows. Some financial crises seem to have more transitory impact than others. E.g. the dotcom bust was very transitory in its impact on the US. the 2008-09 crises has had longer-lasting political and economic impact. I also think the slowdown often occurs in ratchet fashion, with financial crises sometimes bringing to a head long-existing stresses that did not manifest themselves yet in top-line growth.
If North Korea is going to join with South Korea into a union, Japan will be severely screwed under a united Korea. I can see this Korea will also surpass Japan in all terms of GDP. This Korea won't fear of resources shortage due to borders with China-Russia. Japan will be extremely damned because of its geopolitical position and a history of poor diplomacy against its neighbors. If Japan is going to become a meatshield for the American Empire within a few years, then no one in Asia will lend a hand to solve Japan's shortages if China blockades from Taiwan straight.
To me the most interesting and intriguing fact revealed by the graph on growth in per capita income is the downswings in oth the Korean and Japanese series between 1995 and 2000, the reverse of the upswings that occurred in the US and the EU. Is this somehow a result of relative currency exchange rates, or is it “real”? Does China factor into this story?
at its current rate, south korea will most likely go through its own version of the lost decades before managing to surpass japan's gdp per capita. The problem is that SK follows the same economic model as Japan and has a faster aging population than Japan does. Their property bubble is also at the brink of collapse from the look at recent development especially in regards with the cheonse market. At the end of the day, the definition of insanity is doing the same thing over and over and expecting different results
There is a risk that you are right and many experts have worried about this for a while. And yet, Korea has done well. Despite lots of similarities, there are many key differences. The interesting question is why it has been able to avoid Japan's fate--at least so far--despite the similarities.
The difference with Japan is that SK hasn't experienced a popping of their real estate bubble like Japan did and do remember that Japan's economy still grew until 1993 before they started to stagnate. You could also argue that SK today is similar to Japan in the late 80s and 90s as while their demographic problem is beginning to rear its ugly head, it still hasn't reached a point to significantly affect its economy at least for a while. This decade was always going to be the last hurrah for the SK economy before they start shrinking and maybe experience a worst fate than Japan as they I would argue that they followed Japan's footsteps too well and at even faster speed resulting in more problems down the line. Hence, I am skeptical that SK can maintain its current growth rate or even surpass Japan's GDP per Capita ( at least for more than a couple of years before their economy inevitably shrinks).
It has already surpassed Japan in per capita GDP in real PPP terms
The question now is for how long can that hold that lead. There are also several factors in calculating "real" GDP and most articles I found still mentions that Japan is still leading in GDP per Capita
Latest real gdp per capita by PPP are out by the world bank. The gap is only growing...
https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?locations=KR-JP
And the IMF has forecasts out to 2028 https://www.imf.org/-/media/Files/Publications/WEO/WEO-Database/2023/WEOApr2023all.ashx
Do note that most of of SK's GDP is held by a few companies run by few very rich families. If you think that Japan's Keiretsu is bad and is stifling innovation, then multiply it by 10 and you have the korean chaebol. The reason why those companies still seem innovative and why they seem more agile in adapting to new technologies is because they have lots of resource from korea's rapid growth from the last couple of decades to spend on R&D. If history is anything to go by and korea experience an economic crisis like what happened with Japan, then the resources those company once had will decrease significantly and they will inevitably become more conservative eventually falling to stagnation. The same engine that drove korea's economic miracle will become a big burden on their economy and makes it significantly harder for them to escape stagnation
It's probably too anecdotal, not academical, but I happen to be in Seoul this weekend for the first time in... 20 years. I can feel that the life in Korea (especially in Seoul) is as good as in Japan. The price level is still slightly below Japan's level, but the lifestyle is almost identical (or could be better). I can easily foresee that Korea's nominal GDP per capita can be higher than Japan's in the next few years. (it also depends on how JPY will behave, too)
Maybe japanese companies opening factories overseas have the biggest responsibility for this. They have lost jobs in Japan , decreasing income also japanese GDP.
Are there deeper causes for this that go beyond technical/policy reasons (e.g. keeping the yen weak for a long period of time)? Is there something wayward about Japanese society?
I don't think so. This is still the same country that had the "economic miracle" from the early 1950s through the mid-1970s. I find that institutional and historical explanations work better than cultural ones.
Why do you date the economic miracle up to the mid-1970s rather than early 1990s?
It is difficult to understand how the adjustments are done. GDP per capita reached 35,000 USD last year and is here at 42,000. Can you share the details? Did you adjust also the Japanese one with the same methodology? Details would be interesting
I used a data series from the world Bank to make it consistent across countries and years. Please tell me where the $35,000 figure came from. The standard method is called Purchasing Power Parity (PPP). If you simply take a country's GDP and convert it to dollars at each year's exchange rate, the measure of a country's GDP will gyrate up and down with each fluctuation of the currency. PPP starts with figuring out for a base year, what is the currency rate that make a shirt, or loaf of bread, or machine cost the same in each country? Because we want to measure how many shirts, loaves of bread and machines each country can produce and consume each year compared to others. Once we arrive at that PPP rate, we convert GDP for each country at that rate for all the years in the series. That we can tell how much the productive capacity and living standard for each country is changing year-by-year,and also how it performs relative to other countries. I hope this helps clear things up.
Thanks
USD 35,000 average was published by Bank of Korea end of January (there was an article in Nikkei Asia I think). I understand the PPP adaptation for Korean salary, but same exercise should be done for the Japanese - which would lead to inflate the salary to take in account the Japanese deflation.
I thought as much. This raises some interesting questions about the importance - or lack of importance if you will - for the long run theory of productivity growth that is basically driving the slow steady falloff in per capita income growth for Korea and earlier Japan. It would seem to me that the financial sector corrections are transitory, not permanent.
Carl, I'm not exactly sure how you see the interconnection between financial crises and the longterm trend that, as countries converge to the leading countries, their growth rate slows. Some financial crises seem to have more transitory impact than others. E.g. the dotcom bust was very transitory in its impact on the US. the 2008-09 crises has had longer-lasting political and economic impact. I also think the slowdown often occurs in ratchet fashion, with financial crises sometimes bringing to a head long-existing stresses that did not manifest themselves yet in top-line growth.
If North Korea is going to join with South Korea into a union, Japan will be severely screwed under a united Korea. I can see this Korea will also surpass Japan in all terms of GDP. This Korea won't fear of resources shortage due to borders with China-Russia. Japan will be extremely damned because of its geopolitical position and a history of poor diplomacy against its neighbors. If Japan is going to become a meatshield for the American Empire within a few years, then no one in Asia will lend a hand to solve Japan's shortages if China blockades from Taiwan straight.
expecting SK and NK to reunite and somehow restart a second growth period for korea is just wishful thinking
To me the most interesting and intriguing fact revealed by the graph on growth in per capita income is the downswings in oth the Korean and Japanese series between 1995 and 2000, the reverse of the upswings that occurred in the US and the EU. Is this somehow a result of relative currency exchange rates, or is it “real”? Does China factor into this story?
This was the period of the 1997-1999 financial debt crisis in Asia, including Korea, as well as the banking crisis in Japan.
Thank God the annexation was nullified. Korea is better off not being a part of Japan.
The third plot is the most impressive to me.
Yes, it's stunning. Korea does not compete on low wages; Japan tries.