FX Illusion

 

The livelihoods of the general public is showing no sign of improvement, even though Korea’s per-capita gross national income (GNI) is close to US$30,000. Experts point out that this is due mainly to the foreign exchange effect caused by a strong won and the lack of profit flow from the corporate sector to households.

According to local economic research institutes, Korea’s per-capita GNI is expected to be slightly below US$30,000 as of the end of this year. The LG Economic Research Institute recently estimated the figure at US$29,250, increasing by US$3,045 from a year earlier, assuming an average currency rate of 1,030 won per U.S. dollar and an annual economic growth rate of 3.9 percent.

The Hyundai Research Institute, in the meantime, predicts that the sum can exceed US$30,000 this year. According to its data, the per-capita amount is expected to reach US$30,535 when the average exchange rate and economic growth are at 950 won per U.S. dollar and 4.0 percent, respectively. “It is the foreign exchange rate that has the greatest impact on the national income,” said Joo Won, senior research analyst at the institute, adding, “This year’s exchange rate conditions are likely to be a rather positive factor on the national income side.”

Nevertheless, it seems that the increase in GNI will have little immediate effect on the living standards of people in general, since it is mainly driven not by actual economic growth but exchange fluctuations. Besides, the personal gross disposable income (PGDI), which is calculated by subtracting corporate and government incomes from the GNI, is still very low. The per-capita PGDI of Korea is approximately US$15,000, about 50 percent of the GNI. This means money rarely flows from companies to households.

The percentage is easily dwarfed by those of OECD member countries. According to the Bank of Korea’s data for the year of 2012, Korea ranked 16th out of 21 of the countries when it comes to the PGDI-to-GNI ratio. Korea, in fact, was at the bottom of the list along with Estonia, given that the 18th to 21st positions were taken by Sweden, Norway, Denmark, and the Netherlands, all of which are welfare states.

It is not certain whether or not the PGDI will catch up with the increase in the disposable income of the corporate sector, either. The central bank has recently announced that Korean companies’ disposable income soared by 80.4 percent during the last five years. Meanwhile, the PGDI growth was limited to 26.5 percent during the same period. “The profit inflow has been persistent since the 2008 global financial crisis,” said Korea Institute of Finance senior researcher Park Jong-kyu.

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