China & Japan

Rahul Mahajan rahul at peaches.ph.utexas.edu
Wed Jun 26 02:22:59 MDT 1996


Michael Lynch:

>Sorry, I must have seen figures on purchasing power parity
>when I read that China's GDP was about equal to Japan's.
>
>Anyway, shouldn't purchasing power parity figures have some value.
>After all, millions of the Indian poor can feed themselves
>adequately (i.e. they are not starving) for the equivalent of
>$400-500 a year. Whereas, in the UK, I doubt $500 could feed
>anybody for more than 3-4 months.
>
>It seems to me that the reason the Indian poor can feed themselves
>and their familes on incomes which are equivalent to $500 a year
>is because the price of basic foods (such as rice) is much
>cheaper than what basic foods like bread cost in Britain.

Certainly, figures which adjust for internal prices are of value, but it is
hard to give them some intrinsic and well-defined meaning when comparing
societies where the whole conception of basic human needs differs so much
-- as Japan and China, or the US and India. GDP is important in that it
gives a much better measure of a country's importance in the world. It
often seems that PPP and aggregate instead of per capita figures are used
to suggest to people that India and China are really up-and-coming, and
already have the same importance in international trade, for example, as
Germany and Japan. In the face of this, it's important to point out that
Japan can buy seven times as many Cadillacs and hamburgers as China.

Another important point is that world prices are quickly moving toward the
dollar equivalents -- much faster than salaries, of course. In India, most
things from a CD on up cost about as much as or sometimes more than they do
in the US. Food prices fortunately haven't reached that level yet, but
they're rapidly equilibrating. When this happens, the significance of
India's $300 annual income per capita will make itself painfully obvious.

Rahul




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