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Spire's six most recent Spirethoughts.

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Measuring prosperity – The debate continues


In its April 2012 outlook, the IMF noted that Asia’s Newly Industrialized Economies are steadily catching up with Japan in economic prowess. While Japan is still ahead of Singapore, Hong Kong and Taiwan in GDP figures, these countries have overtaken it in terms of PPP per capita.

While the trend is suggestive, it has spurred a debate on the best way to compare growth and prosperity. Should economists consider GDP per capita at PPP (which adjusts for differences in cost of living) or at market exchange rates (that looks at buying power in hard currency terms, which is more relevant globally)? Or, is there a need for a new measure – one that considers an interconnected world, where individuals access products valued in foreign currencies worldwide?

Moreover, some countries have high GDP but much lower actual incomes per head, such as countries with a large foreign-owned export sector (such as Singapore), or large oil & gas or mining sectors (such as some Middle Eastern states) ay have lower actual per-capita income than GDP figures suggest. It can also work in reverse, when countries such as Pakistan have large informal sectors where most of the income is unrecorded and untaxed.

Clearly, there is a need to temper GDP per capita with other indicators of a country’s prosperity and buying power. This is a topic that needs more attention and debate.

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