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Economic Divergence in East Asia: New Benchmark Estimates of Levels of Wages and GDP, 1913-1970

Authors:

Abstract

An extraordinary process of economic divergence took place in Asia during the 20th century. There seems to be consensus among economic historians that the levels of economic development and the living standards in Asian countries were relatively similar before World War I, albeit that Japan was ahead of the rest. Since then, the gap between Japan and other Asian countries has increased.
1
Economic Divergence in East Asia:
New Benchmark Estimates of Levels of Wages and GDP, 1913-1970
Jean-Pascal Bassino
*
and Pierre van der Eng
**
1. Introduction
An extraordinary process of economic divergence took place in Asia during the 20
th
century.
There seems to be consensus among economic historians that the levels of economic
development and the living standards in Asian countries were relatively similar before World War
I, albeit that Japan was ahead of the rest. Since then, the gap between Japan and other Asian
countries has increased. Particularly between Japan and the countries that missed out on the ‘East
Asian economic miracle’ such as Vietnam and Burma. But even countries that only experienced
rapid economic growth since the 1960s, such as Thailand and Malaysia, are still considerably
lagging behind Japan. This is remarkable, because leading economies can be expected to drag
following neighbouring countries in their wake as a consequence of economic interactions
through especially trade (Rivera-Batiz and Romer 1991; Lucas 2000). The degree of intra-Asian
trade, of which Japan was the engine, increased throughout the 20
th
century (Sugihara 1990; Petri
1994). Major questions in the economic history of Asia are therefore: When and why did the
divergence process begin, and when and why did it increase the most?
1
Maddison (1995, 2001) provided the quantitative evidence for the path of economic
divergence in Asia. His estimates of per capita GDP at 1990 PPP dollars suggest that Japan was
already ahead of the rest of Asia in 1913. A major shortcoming of Maddison’s approach is that it
relies on extrapolation back in time (or retropolation) of GDP estimates in PPP dollars in 1990
international, Geary-Khamis dollars. Unfortunately, the arbitrary choice of a benchmark year for
the purpose of retropolation of GDP per capita affects the historical estimates of GDP per capita
(Van der Eng 1994: 99).
2
The simple reason is that the relative purchasing power of currencies is
*
Paul Valery University, Montpellier, and CEFI-CNRS, Aix-en-Provence, France,
e-mail: jean-pascal.bassino@univ-montp3.fr
**
The Australian National University, Canberra, Australia, e-mail: pierre.vandereng@anu.edu.au
The authors would like to thank Professor Konosuke Odaka and the particuipants of a workshop on Modern Economic
Growth and Distribution in Asia: A National Accounts Approach at Hitotsubashi University, Tokyo (11-12 January 2002)
for their comments on a preliminary version of this paper.
1
Some would also be interested in the question why it decreased in recent decades. However, the ‘Asian Miracle’
since the 1960s has been the subject of extensive discussion. For a recent appraisal, see e.g. Rao (2001).
2
This fact led Prados (2000) to develop an alternative approach involving the use of Paasche price levels for mainly
OECD countries to deflate levels of nominal GDP per capita in current national prices. He relied, however, on a
short-cut method for countries and years for which no aggregate PPPs were available, with all the distortions that
may have generated. Such a short-cut approach is difficult to use for most Asian countries, because the data required
for an approximation of price levels through the short-cut approach are generally not available.
2
not fixed, but changes from year to year as the forces that govern international trade of goods
and services cause domestic price structures to resemble international or foreign price structures
to a greater or lesser extent (Heston 1993).
Williamson (2000) recently used wage series corrected for changes in the cost of living
over time to assess divergence in prewar Asia. However, in the face of the flaws of exchange
rates for converting wage rates and the absence of approximations of historical PPP converters in
Asia, he linked his real wage series to Maddison’s estimates of GDP per capita in 1913 for the
purpose of cross-country comparisons of changes in the levels of wages. Like Maddison, he
therefore gave the impression that by 1913 wages in Japan were significantly higher in other parts
of Asia, except the Philippines.
This paper presents a first attempt to use historical estimates of PPPs to compare wages
and GDP per capita in ten Asian countries between 1913 and 1970: Burma, Ceylon, Indonesia,
Japan, Korea, Malaya, the Philippines, Taiwan, Thailand, Northern and Southern Vietnam.
3
Such
PPPs are in principle more appropriate to addressing the issue of economic divergence in Asia
and the possibility that Japan’s level of economic development was ahead of the rest of Asia
before World War I, than retropolations of a recent benchmark year.
This paper is narrowly focused on explaining the methodology and presenting the data.
However, ultimately, this research may allow us to shed light on the process of divergence in Asia
noted above. In principle, two distinct approaches are available to explain the rapid advance of
Japan and the concomitant divergence in levels of economic development in Asia. Maddison
(2001) advanced the proposition that Japan basically experienced Schumpeterian growth since the
late 19
th
century, which explains Japan’s relative advance.
4
Relevant factors were access to
international technology, the provision of public goods conducive to development explain the
acceleration of economic growth. An alternative interpretation was proposed by Williamson
(2000) who maintained that some, though not all countries benefited from the wave of
globalisation in the late 19
th
and early 20
th
centuries. His explanation is based on a Ricardian
perception of the process of growth, hinging on the mobilisation of productive resources in the
region for international trade. Appealing though this explanation may be, a problem is, for
instance, that Japan in 1913 still had a relatively low degree of openness to international trade,
compared with countries in Southeast Asia.
As said, this paper will not address those broader issues to the full, but will instead focus
on the use of PPPs to provide an inter-country comparison of levels of economic development
3
North Vietnam and South Vietnam were not separate countries, except for during 1955-75. Under French colonial
rule, they corresponded to, respectively, Tonkin and Northern Annam, and to Cochinchina and Southern Annam.
3
and standards of living in Asia. The basis of the paper is the calculation of binary PPPs relative to
Japan for all or some of six benchmark years: 1913, 1922, 1938, 1952, 1958 and 1969. Japan is
selected as the benchmark because it is often hailed as a model for economic development in
Asia. In terms of economic performance, colonial Indonesia and French Indochina may serve as
a contrast. They are often regarded as a colonies pur sang, where Dutch and French colonial
exploitation depressed general living standards to low levels and improvements only came after
independence.
5
In contrast, Korea and Taiwan are often seen as two colonies where Japanese
rule, although oppressive in many ways, implemented sound economic development policies that
established foundations for development on which these countries drew since the 1960s (Bassino
2000b). An additional reason for selecting Japan as the benchmark for comparison is that it had,
by far, the best statistical system. Time series of Japanese unit prices data and estimates of per
capita consumption or expenditure are available from the 1880s.
The data presented cover the period 1913-70. In broad terms, this was a period during
which the regulatory intervention of governments, currency boards or central banks impacted on
the current exchange rates to the extent that deviations of PPPs from the exchange rates can be
expected for that fact only, if not for the fact that the ‘law of one price’ is widely known not to
hold in both the short or long-term.
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This period is also chosen because it precedes the years for
which the International Comparisons Project (ICP) started to provide much more extensive and
detailed PPP estimates for Asian countries.
The next section explains the methodology that was used. Section 3 discusses the results,
in terms of their deviation from exchange rates. Section 4 uses the calculated PPPs to compare
wage rates and levels of GDP per capita denominated in national currencies, and section 5
attempts to reconstruct new times series of per capita GDP to assess economic divergence in
Asia between 1913 and 1970. A word of caution, the PPPs presented in this paper are only
tentative, as this is a first attempt at calculating them. As the Appendix explains, the baskets of
goods are still relatively small and should be increased. In addition, the weights used in the
calculations are to some extent arbitrary.
2. Methodology to approximate PPPs
A major problem in international comparative research is the fact that many economic variables,
such as wages or per capita GDP, are denominated in national currencies. Exchange rates can be
4
Schumpeterian growth in the sense of a process in which innovation is the key factor in the reallocation of factors
associated with a drastic increase in productivity. See, for instance, Schumpeter (1939) and Mokyr (1990).
5
See for instance Murray (1980) on French Indochina.
6
Law-of-one price: Abstracting from transport costs, identical goods in different countries have the same price when
expressed in common currency terms.
4
used for conversion of such variables into a common currency, but there are several problems
associated with them. Most importantly, exchange rates do no take account of the actual
domestic purchasing power of currencies, because they tend to reflect the demand for currency
as a consequence of only the foreign trade of goods and services, rather than trade of all goods
and services in an economy. Currency exchange rates tend to reflect the differences between the
price structures of goods and services that enter foreign trade, rather than those of economies at
large (Kravis 1984).
An alternative to exchange rates is the use of approximations of the relative purchasing
power of currencies. Today, thanks to the World Bank and United Nations-sponsored ICP and
subsequent work by Heston and Summers at Pennsylvania University, such approximations of
Purchasing Power Parities (PPPs) are widely available and used (Summers and Heston 1991).
However, for the purpose of historical comparisons, such PPPs have at best been calculated for
Western countries, not for all Asian countries.
The methodology to calculate PPPs is in principle simple, although it may depend on the
purpose for which they will be used. For instance, ICP used an expenditure approach, which in
simple terms involved the collection of retail prices of goods and services, and the use of
expenditure-based weights. By country, prices and weights in expenditure can be compared with
their international averages, and used to calculate PPPs. ICP has done this for 1970, 1975, 1980
and 1985 for an increasing, but still selected number of countries. In addition, Heston and
Summers used a shortcut approach to estimate PPPs for countries that were not in ICP’s sample.
Data limitations make it impossible to replicate the ICP approach. Other approaches are
possible. For instance, Nakagawa (2000) experimented for Asian countries before World War II
with a more flexible procedure based on the minimum spanning tree technique, which enables
using different international comparisons and baskets of commodities and services. However,
data limitations and the choice of using only Japan as the benchmark makes it impossible to use
this approach.
For the purpose of comparison, PPPs were calculated here relative to the Japanese yen by
using two complementary methods. First, the PPP of the currency of country j relative to Japan
(per yen) is calculated as follows:
PPP
jJ
=
×
×
×
×
×
)(
)(
)(
)(
iJij
iJiJ
ijij
ijiJ
qp
qp
qp
qp
5
Where p
ij
is the price of item i for country j, q
ij
is the quantity of item i consumed per capita in
country j, p
iJ
is the average price in Japanese yen of item i, and q
iJ
is the quantity of item i
consumed in Japan.
This approach is attractive because of its simplicity, but there are several factors that may
impact on the results. (1) The Appendix explains that the numbers of matched of products was
relatively small. They mainly concerned food products. However, given that rice and some other
staple crops generally comprised more than half of average household expenditure, and that
possibly 70 to 80 percent of total expenditure was private consumption, such products help to
capture a large part of the differences in the domestic purchasing power of currencies. (2) The
quality of the products that could be matched was not entirely uniform. For instance, preferred
rice varieties tend to vary by country (East Asia prefers short grain, glutinous varieties are
preferred, while Southeast Asia leans towards long grain, drier varieties), and the quality of the
rice used in the matching may not be equally appreciated across the countries. (3) The weights
that were used are in terms of quantities consumed or used per person per year. They were
obtained as estimates of implicit consumption (production + imports – exports), and from cost
of living surveys and household expenditure surveys. Quantities were not available for all
products, but were approximated as reasonable estimates of consumption per capita. (4) Where
possible, urban retail prices were used, because they do not only encompass differences in
production costs, but also differences in the costs of relevant services, such as transport and
distribution. However, in some cases retail prices had to be approximated on the basis of
wholesale and producer prices.
3. Discrepancies between exchange rates and PPPs
Leaving aside price differences between countries caused by variations in the relative cost of
immobile production factors, we may expect significant fluctuations in the discrepancy between
currency exchange rates and PPP converters between the end of the classical Gold Standard at
the beginning of World War I and the introduction of variable exchange rates in Asian countries
in the 1980s.
Until World War I, most Asian countries in essence had trade regimes with few major
restrictions. With the exception of China, Hong Kong and French Indochina, most had
embraced the Gold Standard (or rather the Gold-Exchange Standard, as was the case in most
Asian countries, Van der Eng 1999). Foreign trade imbalances automatically triggered monetary
adjustments that in principle would lead to modifications in the price level of countries, as a
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consequence of which purchasing power parity of currencies would be maintained. Consequently,
international trade through the Gold Exchange Standard tended to make domestic price
structures in Asia resemble international price structures.
Table 1: Exchange Rates of Asian Currencies to the US$, 1913-1969
1913 1922 1938 1952 1958 1969
Japan (yen)
Free/official 2.03 2.09 3.56 361 361 360
Unofficial 514 423 401
Burma (rupee/kyat)
Free/official 3.08 3.48 2.66 4.77 4.77 4.81
Unofficial 5.90 11.16 17.40
Ceylon (rupee)
Free/official 3.08 3.48 2.66 4.76 4.76 5.95
Unofficial 5.60 6.28 11.33
Indonesia (guilder/rupiah)
Free/official 2.49 2.68 1.83 11.40 36.00 327
Unofficial 19.63 71.74 408
Korea (yen/hwan/won)
Free/official 2.03 2.09 3.56 6,000 500 308
Unofficial 10,500 1,173 309
Malaya (S$/ringgit)
Free/official 1.76 1.97 1.72 3.05 3.06 3.06
Unofficial 3.49 3.17 3.08
Philippines (peso)
Free/official 2.01 2.05 2.00 2.02 2.02 3.93
Unofficial 2.82 3.39 4.95
Taiwan (yen/NT$)
Free/official 2.03 2.09 3.56 15.65 22.56 40.00
Unofficial 24.25 42.29 41.04
Thailand
Free/official 2.67 2.48 2.27 18.87 20.97 20.90
Unofficial 18.56 21.58 21.02
Vietnam, North (piastre/dong)
Free/official 2.08 1.85 3.52 20.59 3,590 3.75
Unofficial 38.50 - -
Vietnam, South (piastre)
Free/official 2.08 1.85 3.52 20.59 35.00 118
Unofficial 38.50 81.31 225
Sources: 1913, 1922 and 1938 Burma and Ceylon (Indian rupee) Statistical Abstract of the United
States, Indonesia Mededeelingen van het Centraal Kantoor voor de Statistiek and Economisch Weekblad voor
Nederlandsch-Indië; Japan, Korea and Taiwan JSA (1987: 104), Malaya, Blue Book of the Straits
Settlements; Philippines Statistical Yearbook of The Philippines (1941); Thailand Ingram (1971: 37),
Vietnam, Annuaire statistique de l’Indochine Française; 1952, 1958 and 1969 Pick’s Currency Yearbook
(various years).
During World War I, most Asian countries suspended the Gold-Exchange Standard. It
was resumed during the 1920s, albeit that China, Hong Kong and French Indochina continued to
7
use the Silver Standard until respectively 1937 and 1930. In the 1930s, devaluations of currencies
relative to gold and mounting strict trade regulations aimed as discouraging imports and
encouraging exports, significantly enhanced the distortions between domestic and foreign price
structures. During the 1930s, most Asian countries opted for a nominal peg, following the
pound, the US dollar, the French franc and the Dutch guilder in their devaluations in 1931, 1933,
1936 and 1937, respectively.
Table 2: Exchange Rates and PPPs of Asian Currencies per 100 Japanese Yen, 1913-1969
1913 1922 1938 1952 1958 1969
Burma (rupee/kyat)
Exchange rate 152 166 78 1.32 1.33 1.34
PPP - - - 0.92 0.70 1.09
Ceylon (rupee)
Exchange rate 152 166 78 1.32 1.32 1.66
PPP - - 51 1.38 1.32 0.80
Indonesia (guilder/rupiah)
Exchange rate 124 131 51 3.17 10.00 91.25
PPP 67 73 32 3.49 7.02 28.54
Korea (yen/hwan/won)
Exchange rate 100 100 100 1,662 139 86.01
PPP 71 80 - - 213 43.43
Malaya (S$/ringgit)
Exchange rate 88 92 50 0.84 0.85 0.85
PPP 67 66 25 1.25 0.62 0.39
Philippines (peso)
Exchange rate 99 98 56 0.56 0.56 1.10
PPP 65 52 43 0.94 0.52 0.56
Taiwan (yen/NT$)
Exchange rate 100 100 100 4.33 6.27 11.16
PPP 59 78 - 4.21 5.09 5.88
Thailand
Exchange rate 132 119 64 5.23 5.83 5.83
PPP - - - 3.12 2.59 2.40
Vietnam, North (piastre/dong)
Exchange rate 103 88 100 5.70 995 3.75
PPP 39 33 42 6.95 408 -
Vietnam, South (piastre)
Exchange rate 103 88 100 5.70 9.73 32.93
PPP 42 39 42 8.01 8.09 37.76
Notes: - = not available. Some exchange rates calculated via the Yen and the official exchange
rates of the pound sterling or the US dollar. Where countries had a multiple exchange rate
system, the export or effective rate was used.
Sources: Exchange rates see Table 1, PPP converters see Appendix 1.
Trade regulations continued after the late-1940s and became increasingly restrictive as a
consequence of efforts of governments in several Asian countries to further import-replacing
8
production. In addition, until the 1980s, monetary authorities of most Asian countries inhibited
the free convertibility of currencies, albeit to very different degrees. Table 1 shows significant
discrepancies between the official and black market exchange rates of currencies, which can be
taken as reflections of such restrictions. Except for Thailand and Malaya, postwar Asian
currencies were clearly overvalued at their official exchange rates.
Table 2 presents the results obtained by using the method for PPP calculation outlined
above. For the purpose of comparing GDP per capita and wage rates with Japan, the exchange
rates and PPP converters are expressed relative to the Japanese yen. Before World War II, all
currencies were undervalued relative to the yen, some less than others. Consequently, the
domestic purchasing power of Asian currencies was higher than that of the yen in Japan.
In 1913, all these countries still had few trade restrictions and may have had broadly
similar degree of openness to foreign trade. For instance, the per capita value of exports was one
to two pounds sterling (converted with exchange rates) in most countries, including Japan, except
Malaya where it was 10 pounds (Van der Eng 1999: 76). This suggests that the influence of trade
on adjusting domestic to international price structures was broadly the same. However, Japan had
started to protect its rice farmers through a 15 percent tariff (which increased the domestic price
of rice) in 1904 and through an increasing variety of indirect input subsidies (which may have
reduced the domestic price of rice). Given the high weight of rice in the calculations of the PPP
converters, this is likely to be the main reason for the undervaluation of the yen.
Since World War I, and particularly during the 1930s, the growing volume of trade
regulations aimed as discouraging imports and encouraging exports, is likely to have caused
distortions between domestic and foreign price structures during the interwar years. In Japan, the
nominal rate of protection of rice increased to 45 percent in the 1930s (Hayami 1988: 42). This is
again a key factor in the relative overvaluation of the yen in 1938, as revealed in Table 2, albeit
that colonial Indonesia, the Philippines, and French Indochina had earlier in the 1930s started to
take their own measures in support of rice farmers. An increasing range of new trade barriers,
often aimed against Japanese manufactures, also reduced the comparability of price structures in
Asian countries (Booth 2001).
After World War II, most Asian countries became members of the International
Monetary Fund, maintained a closed capital account with restrictions and controls on monetary
flows into and out of the country, and embraced what may be described as a dollar-exchange
system in which monetary reserves of mainly US dollars were in principle used to maintain the
local currency at a realistic rate of exchange with the US dollar. However, most countries ran
current account deficits and occasional foreign exchange shortages made maintaining a realistic
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exchange rate difficult. In many cases discrepancies increased between the domestic and
international purchasing power of Asian currencies.
Such discrepancies are reflected in the differences between official and unofficial
exchange rates in Table 1. In most cases, except Thailand, and Ceylon and Malaya in the 1950s,
currencies were overvalued, including in Japan. This only changed when countries started to
liberalise capital controls in the 1970s and implemented variable exchange rate regimes in the
1980s (eg. Japan in 1981, Indonesia in 1986 and the Philippines in 1987). In all cases, except
Burma and Vietnam, unofficial currency markets disappeared.
Compounding the distortions caused by capital controls, were tariffs and non-tariff trade
barriers used by all countries to further domestic agricultural and/or manufacturing production.
Such barriers continued to exist until most countries started to reduce tariffs in the late-1980s and
turn their non-tariff trade barriers into tariffs in the 1990s.
Consequently, for these two reasons and of course because of continued differences in
relative factor prices between countries, exchange rates are imperfect approximations of the
actual purchasing power of currencies for international comparisons. Table 2 shows that relative
to the Japanese yen, Asian currencies were both overvalued and undervalued to different degrees
in each of the three benchmark years.
4. Comparison of wage rates
A simple comparison of wage rates across countries would involve the calculation of ‘rice
wages’.
7
Table 3 shows the results for wages for unskilled male workers, mainly in urban centres.
These results show that wages in land abundant countries like Burma, Thailand, South Vietnam
and also the Philippines were high relative to the wages in land-scarce parts of East Asia,
particularly Japan, Taiwan, Korea, North Vietnam and Indonesia (Java). The basic reason is most
likely that the lower opportunity cost of land made the countries of especially mainland Southeast
Asia low-cost rice producers. The opportunity cost of labour may have been higher in land-
abundant countries than in land-scarce countries. Physical output per hour worked in rice
agriculture was indeed high in mainland Southeast Asia compared to the rest of the region (Van
der Eng 1996). High labour productivity and relatively low rice prices seem the main explanations
for the relatively high rice wages in some parts of Asia. Between 1913 and 1938, rice wages
7
International comparison of rice wages for unskilled workers has been undertaken in Asia before the 1960s, see for
instance Royer (1950). For a similar comparison based on wheat for European countries between 1500 and 1800, see
Van Zanden (1999).
10
increased in Malaya, Thailand, Burma, the Philippines, Korea and Japan, while they stagnated in
Taiwan and declined in Vietnam.
Table 3: Rice Wages of Male Unskilled Workers, 1913-69 (daily wages in kg. rice)
1913 1922 1938 1952 1958 1969
A. In current Japanese yen (thousand yen for 1952-69)
J
apan 4.3 6.8 5.2 2.1 3.2 6.4
Burma 6.5 6.6 7.6 7.5 11.4 13.6
Ceylon
2.5 2.6 2.4
Indonesia (Java) 2.9 2.9 3.2 2.4 1.9 2.0
Korea/S.Korea
3.6 7.6 6.9
6.2 8.5
Malaya 3.3 1.9 6.0 6.9 7.0 5.0
Philippines
5.6
5.0 7.2 3.2 5.0 2.9
Taiwan
3.9 3.6 4.1 6.6 7.9 13.9
Thailand 7.5 7.8 10.3 11.1 10.6 8.5
Vietnam, North
4.2 4.4 3.0 4.5 2.0
Vietnam, South 7.8 8.2 5.9 4.5 7.8 3.0
B. Index, Japan = 100
J
apan 100 100 100 100 100 100
Burma 152 97 145 362 354 214
Ceylon 120 81 38
Indonesia (Java) 67 42 61 114 58 32
Korea/S.Korea 83 111 94 190 133
Malaya 77 28 116 335 216 78
Philippines 130 73 137 155 156 46
Taiwan 91 53 78 322 243 218
Thailand 175 114 197 541 329 133
Vietnam, North 97 64 57 216 61
Vietnam, South 183 121 112 217 241 47
Sources: (a) wages, Japan 1913-38 Bank of Japan (1966); Burma 1913-38 see Williamson (1998:
Appendix 1); Indonesia (Java) Dros (1992); Korea and Taiwan 1913-38 Mizoguchi and Umemura
(1988); Philippines 1913-38 see Williamson (1998: Appendix 6); Thailand 1918-38 Suehiro et al.
(1999); Vietnam 1913-38 Giacometti (2000); 1952-69 ILO Yearbook of Labour Statistics; (b) rice
prices see Appendix 1, Thailand 1913-38 Suehiro et al. (1999), others Barker et al. (1985).
Rice wages take no account of the fact that with economic progress, households purchase
an increasingly greater range of products. Hence, rice wages become an increasingly less relevant
indicator of the standard of living as economies evolve. For that reason the PPP converters
presented in Table 2 are more relevant for comparisons of real wages across countries. Table 4
presents the results of the conversion of wages with the available PPP converters. It allows
comparisons for each benchmark year, while the evolution of the wage gap with Japan provides
an indication of economic divergence. Remarkably, in 1913, wage rates in most Asian countries
were as high, if not higher than in Japan. This was also the case for most countries in other years,
11
except for Ceylon, Indonesia (Java) and North Vietnam, and except for 1922 and 1969. It may be
possible to analyse this finding for each individual country and each year, but it is clear from
Table 4 that real wages in Japan only started to exceed those in other parts of Asia by a significant
margin in the 1960s.
Table 4: Wages of Male Unskilled Workers, 1913-69
1913 1922 1938 1952 1958 1969
A. In current Japanese yen (thousand yen for 1952-69)
Japan 0.59 2.17 1.58 208 329 1,152
Burma 273 565 645
Ceylon 171 198 412
Indonesia 0.46 0.71 0.85 160 140 257
Korea / South Korea 0.69 2.08 538 1,369
Malaya 0.64 0.71 1.99 257 544 862
Philippines 0.95 1.56 2.36 207 540 556
Taiwan 0.72 1.08 343 597 1,686
Thailand 539 774 969
Vietnam, North 0.69 1.01 0.76 378 170
Vietnam, South 1.13 1.62 1.51 235 515 312
B. Index, Japan = 100
Japan 100 100 100 100 100 100
Burma 131 172 56
Ceylon 82 60 36
Indonesia 77 33 54 77 42 22
Korea / South Korea 117 96 164 119
Malaya 108 33 126 124 165 75
Philippines 161 72 149 99 164 48
Taiwan 123 50 165 182 146
Thailand 259 235 84
Vietnam, North 118 47 48 182 52
Vietnam, South 191 75 95 113 157 27
Note: PPP converters expressed in Japanese yen.
Sources: Wages see Table 3, PPP converters see Table 2.
A shortcoming of any comparison of wages is the fact that it tends to be limited to one
category of workers, in this case unskilled males in urban areas. With sustained economic
progress, unskilled workers become less representative for the average wage earner. For that
reason a comparison of levels of GDP may be of greater interest.
5. GDP per Capita, Economic Divergence in Asia during 1913-1970
Table 5 presents the estimates of GDP per capita in current Japanese yen that are obtained by
deflating GDP per capita in national prices with the PPP converters calculated for this paper.
12
There are fewer entries in Table 5, compared with Table 4, because for some countries prewar
GDP data in current prices are not available. The results in Table 5 are broadly consistent with
the income gap with Japan observed in terms of rice wages and nominal wages in PPP yen. There
are some key differences, however. The main one is that, although GDP per capita in 1913 is
broadly the same in Japan, Indonesia, Taiwan and South Vietnam, the GDP per capita gap opens
up after 1913, not later as the wage data in Tables 3 and 4 suggested.
Table 5: GDP per Capita in Asian Countries, 1913-69
1913 1922 1938 1952 1958 1969
A. In current Japanese yen (thousand yen for 1952-69)
Japan 98 271 377 72 126 607
Burma 27 43 34
Ceylon 256 42 54 142
Indonesia 105 154 160 32 37 102
Korea / South Korea 51 110 41 150
Malaya 179 526 501 67 114 283
Philippines 241 44 98 209
Taiwan 118 172 50 87 234
Thailand 45 68 154
Vietnam, North 49 70 57 28 39
Vietnam, South 123 134 124 34 63 76
B. Index, Japan = 100
Japan 100 100 100 100 100 100
Burma 38 35 6
Ceylon 68 58 43 23
Indonesia 107 57 42 44 30 17
Korea / South Korea 52 41 33 25
Malaya 182 194 133 93 93 47
Philippines 64 61 78 34
Taiwan 120 64 70 70 38
Thailand 42 54 25
Vietnam, North 50 26 15 33 31
Vietnam, South 125 49 33 46 50 12
Note: PPP converters expressed in Japanese yen.
Sources: PPPs from Table 2; GDP: Burma 1947-70 National Income of Burma and Burma Quarterly
Bulletin of Statistics; Ceylon 1913-50 constant prices Maddison and Van der Eng (2001), 1938
current prices Salgado (1960), 1950-70 current and constant prices Savundranayagam (1982/83);
Japan, JSA (1987); Korea and Taiwan 1913-40, Mizoguchi and Umemura (1988) averages of
GDP(E) and GDP(Q); Korea South 1952-70 Korea Statistical Yearbook; Malaya 1913-39 Nazrin
(2001), 1947-70 Rao (1976); Indonesia constant prices Van der Eng (2002), current prices Van
der Eng (2001); Taiwan 1952-70 Taiwan Statistical Data Book; Philippines constant prices Hooley
(1999), 1938 current prices UN Yearbook of National Income Statistics, 1948-70 NEDA (1978);
Thailand 1949-70 Trescott (1968/69) and National Income of Thailand; 1950-70 Vietnam North
and South 1913-54 Bassino (2000a), Vietnam North 1955-70, General Statistical Office of
Vietnam; Vietnam South 1955-70, BNV (1958) and Dacy (1986).
13
The availability of several benchmark years allows us to construct GDP per capita series
in PPP yen that are more consistent over time than the retropolation of only one benchmark
year. The benchmark estimates of GDP per capita in PPP yen were retro/extrapolated for each
country. These series are converted into indices relative to Japan (Japan=100). For 1913-20 the
index is the average of the indices in 1913 and 1922 yen; for 1921-30 the index is in 1922 yen
(except for the Philippines and Ceylon, which are in 1938 yen); for 1931-40 the index is the
average of the indices in 1922 and 1938 yen (except for the Philippines and Ceylon, which are in
1938 yen); for 1949-55 the index is the average of the indices in 1952 and 1958 yen (except for
South Korea, which is in 1958 yen); for 1956-63 the index is in 1958 yen; for 1964-70 the index is
the average of the indices in 1958 and 1969 yen (except for North Vietnam, which is in 1958
yen). The choice of the sub-periods is somewhat arbitrary, as there is no reason to assume that
the price structure remained essentially unchanged throughout each sub-period. Figure 1 presents
the time series of the gap in GDP per capita.
The final step is the measurement of GDP per capita in constant PPP yen. The gap series
of per capita GDP between Japan and other countries is simply expressed as a proportion of
GDP per capita in Japan at 1934-36 constant yen. The results are shown on Figure 2.
In 1913, per capita income in Japan was lower than in Malaya and broadly comparable to
Indonesia, Taiwan and South Vietnam. Compared to Japan, the common denominator in each of
these countries is most likely their success in export-oriented development at that time, involving
respectively sugar/rubber, tin/rubber, rice/sugar and rice. In relative terms, Japan’s exports did
not take off until during World War I, when Japan increased its exports of manufactures,
particularly of textiles. Malaya’s relatively small economy in particular benefited from the boom in
rubber production and prices before and during World War I.
After its postwar economic set-back, Japan expanded its exports of manufactures, mainly
to East Asia, while export development in other Asian countries continued to depend on primary
commodities. International commodity prices fluctuated significantly in the 1920s and 1930s as a
consequence of successively overproduction, production restriction schemes and increasing trade
barriers. For instance, Malaya experienced the consequences of fluctuating rubber prices;
Indonesia of changing rubber and sugar prices; Ceylon of rubber and tea prices; The Philippines
of sugar prices; Burma, Thailand, South Vietnam and Korea of rice prices; Taiwan of rice and
sugar prices. Unlike Japan, changing commodity prices caused fluctuations in the terms of trade
of these countries throughout the 1920s and 1930s. Between 1913 and 1938, the barter terms of
trade is likely to have decreased in all countries, while in Japan it fluctuated but increased (for
example in Indonesia, see Van der Eng 2002: 157).
14
While most countries in Figure 2 show a decline in GDP per capita between 1938 and
1950, both North and South Vietnam experienced remarkable increases, despite the ongoing
Indochina war until 1954 that affected particularly North Vietnam. This may be caused by the
fact that the 1952 market prices of basic commodities, particularly rice, in French-controlled
urban centres were lowered by significant implicit subsidies. Hence, This situation still existed in
both parts of the country in 1958, and in the South in 1969. It may also be possible that the levels
of prewar GDP are underestimated, particularly for North Vietnam.
In the 1950s, the Japanese economy is likely to have recovered faster from the setback of
the war than the other Asian countries. The key differences were generous American support in
various forms (including that of a supply basis during the Korea war) to assist Japan’s economic
recovery, and Japan’s ability to tap into the booming world trade with low-cost manufactures. At
the same time, most other Asian countries resumed exports of primary commodities and
continued to endure the vagaries of international commodity prices in the form of fluctuations in
their barter terms of trade, while they committed precious recourses to spurring import-replacing
manufacturing industries. A host of other factors specific to each of the countries help to
understand the growing dichotomy in terms of GDP per capita with Japan in the 1950s and
particularly the 1960s when the gap opened up faster than it had done before (for Southeast Asia
see eg. Myint 1967).
6. Concluding remarks
This brief paper presented results from ongoing work on the estimation of PPP converters that
will eventually allow a fuller comparison of economic data across countries than currency
exchange rates enable us to do at the moment. The paper has indicated that a simple expenditure-
based approach may suit this purpose. However, the price data collected so far mainly concern
basic consumer goods. PPP converters will require a broader range of price data, including other
consumer goods (eg. textiles and utensils), services and also capital goods.
The paper has also demonstrated that the choice of benchmark years is quite crucial. The
reasons for a discrepancy between exchange rates and PPPs will vary from year to year, as a
consequence of which any extrapolation of a variable such as GDP per capita from the
benchmark year is likely to may yield extrapolated relative levels that do not reflect the relative
levels that may be estimated if the relevant data for that year are available.
15
Figure 1: Per capita GDP in selected Asian countries, 1913-70 (Japan=100)
Notes: Logarithmic Y axis. The dotted bars indicate breaks caused by changes in the reference years (see main text).
Sources: See Table 5.
0
50
100
150
200
250
1910 1920 1930 1940 1950 1960 1970
Japan South Vietnam
North Vietnam Korea
Taiwan Malaya
Indonesia Philippines
Thailand Ceylon
Burma
16
Figure 2: Per capita GDP in selected Asian countries, 1913-1970 (1934-36 Japanese yen)
Note: The dotted bars indicate breaks caused by changes in the reference years (see main text).
Sources: See Table 5, GDP per capita Japan from Ohkawa et al. (1974), extrapolated with GDP in constant prices from Annual Report on the National
Accounts of Japan.
10
100
1,000
1910 1920 1930 1940 1950 1960 1970
Japan S.Vietnam N.Vietnam Korea
Taiwan Malaya Indonesia Philippines
Thailand Ceylon Burma
17
In spite of these limitations, comparison of wages and GDP suggests that, around 1913,
Japan’s levels of wages and GDP per capita were lower than Maddison and Williamson have led
us to believe. The process of economic divergence is likely to have taken place particularly
between 1913 and 1970, after which countries one by one embarked on a process of rapid
economic growth, later labelled the ‘East Asian economic miracle’, that saw them catch up with
Japan.
We have briefly sketched some reasons for divergence, which emphasised differences in
foreign trade patterns between Japan and the rest. However, this explanation is far from
complete, because it does not address the ultimate factors behind the success and failure of trade
as an engine of growth. It also does not reflect a host of factors that enhanced or restricted the
growth of production for domestic use.
It is possible that Japan embarked on a process of Schumpeterian growth after 1913,
caused by the finetuning of commercial institutions, the provision of conducive public
infrastructure and the development of entrepreneurial gest. The growth experience of other East
Asian countries may be described as being largely Ricardian. Particularly in the land-abundant
parts of the region, the opening up of land for agricultural production led to rapid advances in
wages and GDP per capita, but both were eroded by adverse movements in the barter terms of
trade and sustained high population growth, in some cases such as Malaya enhanced by
significant inward migration. In contrast, areas of relatively high population density and scarce
natural endowments, such as Korea, North Vietnam and the core island of Indonesia, Java, the
gains from trade have been more limited, as these parts of the region failed to make the shift
from Ricardian to Schumpeterian growth until after the 1960s. But that is a hypothesis for further
research.
18
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Appendix 1: Data sources for the calculation of PPPs:
Japan: 1913, 1922, 1938 Ohkawa, Shinohara and Umemura (1967) and JSA (1987), 1938, 1952,
1958 and 1969 Japan Statistical Yearbook.
Burma: 1952 and 1958 Burma Quarterly Bulletin of Statistics, 1969 Burma Statistical Yearbook.
Ceylon: 1938 The Ceylon Blue Book, 1952, 1958 and 1969 Statistical Abstract of Ceylon and ILO
Yearbook of Labour Statistics.
Indonesia: 1913, 1922 and 1938 Creutzberg (1978) and Korthals Altes (1994), 1952 and 1958
Statistik Bulanan Indonesia and Nugroho (1967), 1969 Indikator Ekonomi.
Korea: 1913 and 1922 Chosen Sotokufu Tokei Nenpo, 1958 Korea Statistical Yearbook and ILO
Yearbook of Labour Statistics, 1969 Monthly Statistics of Korea.
Malaya: 1913, 1922, 1938 Nazrin (2001) and Blue Book (Straits Settlements), 1952 Federation of Malaya
Government Gazette and some Singapore prices Malaya Statistics, Monthly Digest of Economic and
Social Statistics; 1958 Monthly Statistical Bulletin of the Federation of Malaya, 1969 Monthly Statistical
Bulletin of West Malaysia.
Philippines: 1913 and 1922 Statistical Bulletin of the Philippine Islands; 1938 Bulletin of Philippine
Statistics; 1952 Statistical Handbook of the Philippines 1903-1953 (1952 is 1953 prices, converted to
1952 prices with CPI sub-indices from Journal of Philippine Statistics, 13, No.7-9 (1960) p.5,
1958 Handbook of Philippine Statistics 1903-1959, 1969 Journal of Philippine Statistics, 21, No.3
(1970) pp.60-65.
Thailand: 1952 Statistical Yearbook of Thailand, 1958 and 1969 Thailand Bulletin of Statistics, ILO
Yearbook of Labour Statistics.
Taiwan: 1913 and 1922 Taiwan Sotokufu Tokeisho, 1952 and 1958 Taiwan Statistical Data Book and
ILO Yearbook of Labour Statistics, 1969 Commodity Price Statistics Monthly, Taipei City.
21
Vietnam: 1913, 1922, 1938 and 1952 Giacometti (2000: 189), Annuaire Statistique de l’Indochine and
Bulletin Économique de l’Indochine, Annuaire Statistique du Vietnam; North Vietnam 1958 Fall
(1960: 253), South Vietnam 1958 and 1969 Nien Giam Thong-ke Vietnam and Bulletin
Économique de la Banque Nationale du Vietnam.
Where available, retail prices were used, in some instances retail prices were approximated with
farm gate prices or wholesale prices. Table A.1 shows the numbers of product and price matches
that could be established for each country and year. Weights for calculation of the PPP
converters were for Japan calculated from Shinohara (1967), JSA (1987, vol.5: pp.118-119), and
for other countries from various household expenditure surveys and from FAO estimates of
implicit consumption in 1961 and 1969 (http://apps.fao.org/ ).
Table A.1: Numbers of product/price matches for each country with Japan, 1913-1969.
1913 1922 1938 1952 1958 1969
Indonesia
12 16 18 13 14 13
Korea
8 7 - - 20 16
Malaya
10 12 12 13 16 13
Philippines
11 12 10 15 14 11
Taiwan
8 6 - 15 15 18
Thailand
- - - 19 20 15
Burma
- - - 15 15 21
Ceylon
- - 17 15 15 18
North Vietnam
109893 -
South Vietnam
8 9 7 13 18 18
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