Per Capita Competition

 

A recent analysis shows that failure of “Abenomics,” the economic policy led by Japanese Prime Minister Shinzo Abe, will result in the reversion of the per capita incomes of Korea and Japan by 2020.

Jeon Min-kyu, a researcher at Korea Investment Security, predicted on March 12 that Korea’s per capita income will surpass that of Japan in 2020 by a small margin, if Korea’s annual average growth rate reaches 4.5 percent with the success of its three-year economic innovation plan, and Japanese annual GDP growth stays at a the 1 percent level.  

Japanese per capita income topped at US$46,562 in 2012, but plunged to US$38,533 last year, a whopping 17.2 percent drop. The figure represents the lowest since 2007 and is even lower than US$38,688 in 1994.

The main culprit of the drop was the devaluation of the yen against the US dollar by 18.2 percent, which was a part of Abenomics.

In contrast, the researcher presumes that the Korean per capita income last year was US$24,126, up US$1,419 from that of 2012.

He said, “As of last year, Korea’s per capita income amounts to 63 percent of that of Japan, which means the gap between the two has been dramatically narrowed, when considering Korea’s per capita incomes were less than 50 percent of Japan’s since the global financial crisis in 2008.”

Jeon also guesstimated that the reduction of the  per capita income gap between the two countries hinges on the fates of Abenomics and the Park Geun-hye administration’s three-year economic innovation plan.

According to the estimate, if Korea’s per capita income growth rate reaches per annum 4.5 percent on average due to the success of its economic innovation plan, and Japan’s personal income growth rate comes to a stop at 1 percent, Korea’s per capita income will surpass the US$40,000 mark, meaning Korea will beat Japan in per capita income in 2020 by a small margin.

However, it will be a completely a different story if Abenomics succeeds. Jeon says, “If Japan records an average real economic growth rate of three percent from next year, its per capita income will exceed US$48,000 in 2020, which means the per capita income gap between the two countries will be narrowed, but Japan will not be overtaken by Korea.”

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