Per Capita Income Surpasses $20,000

Korea’s per capita income in terms of purchasing power parity has recorded more than $20,000 for the first time since 2004. The government also forecasted that the nation’s per capita income as commonly cited will surpass $20,000 next year if the won gains four percent in value.

According to the OECD’s estimates released earlier this month on its website, Korea’s per capita income in terms of purchasing power parity recorded $20,600 in 2004, ranking the country 23rd among 30 member countries.

Korea ranked 24th in terms of per capita income based on its currency value.

Korea’s per capita income is over $ 20,000 in terms of purchasing power parity-

The government’s official statistics use the per capita income calculated based on the currency exchange rate. The per capita income in terms of purchasing power parity takes into account the real purchasing power of an individual considering the country’s price level.

For instance, two countries may have the same per capita income of $20,000, but if one country’s price level was half that of the other country, its per capita income based on purchasing power parity would be twice that of its counterpart.

In case of China, its per capita income is a mere $1,000, but its per capita income in terms of purchasing power parity reaches $5,000 due to the country’s low prices. The less developed a country is, the higher its national income based on purchasing power parity tends to be.

“While per capita income is largely influenced by the exchange rates, purchasing power parity-based national income more accurately reflects the people’s actual living standards,” said Song Tae-jeong of LG Economic Research Institute.

If the exchange rate falls, next year’s official per capita income will be $ 20,000-

Korea’s currency value-based per capita income, which is more widely used, is less than $20,000.

When the Ministry of Finance and Economy announced the “Economic policy direction for 2006” last year, it forecasted that Korea’s national income will be able to reach $20,000 by 2008 given an economic growth rate of around five percent and annualized exchange rate of 1,024 won against the dollar.

According to the ministry’s estimates, Korea’s per capita income will reach $20,380 by next year if the desired economic growth rate is achieved and exchange rates fall by four percent annually this year and the next.

Last year’s average exchange rate was 1,024 won against the dollar, and a four percent decline this year will mean 983 won per dollar. Considering yesterday’s exchange rate of 982.50 won against the dollar, it seems possible to achieve a per capita income of $20,000 next year.

Nevertheless, some point out that it is misleading to believe that a per capita income of $20,000 will mean Korea is an advanced nation since 18 out 30 OECD member countries have per capita incomes between $30,000 and $ 70,000.

“Achieving per capita income of $20,000 just means that we have established the system necessary to becoming an advanced country. Now is the time that we focus on substantiating the economy and eliminating the income gap,” said Min Sung-ki, head of Research Department of the Bank of Korea.

Korea’s per capita income increase is led by economic growth-

According to Ministry of Finance and Economy’s report on advanced countries’ examples of achieving per capita income of $20,000, economic growth contributed 46 percent and strong currency 54 percent to achieving per capita income of $20,000 in the case of 17 OECD member countries

While Japan, Italy, and Denmark’s per capita incomes reached $20,000 thanks to strong currencies as a result of the weakening dollar, Singapore and Ireland’s achievements relied more on their economic growth.

Korea’s national income increase is being led by the economic growth as the country maintained annual economic growth rate of 4.9 percent ever since the nation’s income reached $10,000 in 1995. Meanwhile, the won gained only 0.1 percent.

The exchange rate of the won against the dollar reached its peak in April 2003, right after Roh Moo-hyun administration took office, and has been falling ever since. This indicates that stronger won is helping higher per capita income.

It is no coincidence that President Roh said in a New Year meeting hosted by the Korea Chamber of Commerce and Industries that he does not wish Korea’s per capita income of $20,000 to be achieved by the strong won.

Hyun-Jin Park witness@donga.com