Catching Up Part 2

I got a hot new idea for a post this week that looks at how other countries are catching up to the US. The idea stemmed from the thought that the world has changed a lot, and many of the economic relationships between other countries and the US might need to be revisited given the shifts in relative economic success. For example, most of our free trade agreements are pretty old and likely reflect the relative poorness of some countries. So I downloaded a bunch of data and then got this sneaking feeling I had already done this topic before. And lo and behold, I did -- back on December 5, 2017.

Since I spent a good bit of time downloading this data I decided to plow ahead and call this one Catching Up Part 2. In Part 2, I focus on GDP per capita in dollar terms. This means I am focusing on what the average person makes or earns in each country. (Warning -- the next few sentences in this paragraph are basically footnote material. You can easily skip to the next paragraph if this kind of material bores you.)  If GDP per capital increases, that means GDP is growing faster than population and it means the average person is doing better economically. Putting each country's amount in dollars means that changes in the exchange rate are reflected in the resulting numbers. Presumably these exchange rate changes help to purge any impacts of relative price changes. That is, if GDP per capita is growing for a country only because of prices, then its exchange rate would depreciate and essentially nullify the impacts of the price changes. I use market exchange rates instead of so-called purchasing power parity rates. (Talk about boring!)

Part 2 also divides the changes in per capita GDP into two time periods -- from 1960 to 1979 and from 1980 to 2016. The World Bank data starts in 1960. I would have preferred to start earlier but the data isn't there. I chose 1980 because so much happened in the world after that date -- including the break up of the Soviet Union, China's emergence in world trade, and many political and economic changes in Latin America. You might think of these two time periods as Post-World War II and Globalization.

The main question posed here today is to what extent the rest of the world caught up to the US economically since WWII and since the onset of Globalization. I chose 17 countries to compare against the USA. The gorgeous table below has several columns. The first three columns contain the GDP per capita for each country in 1960, 1980, and 2016. The next three columns show the share of each country's GDP per capita relative to the US in each of those years. For example, in 1960 the number for Luxembourg is 0.75 meaning Luxembourg's GDP per capita was about 75% of the US GDP per capita in 1960. Notice that by 2016 it had risen to 1.75 or 175% of US GDP per capita. That's a huge increase. The US economy grew by 19 times over that time period. Luxembourg's economy grew 44 times! Note: Luxembourg is a tiny place and was included because of this spectacular result. It used to be a steel-making dynamo but is now a center for finance, knowledge, and space exploration. Enough about Luxembourg.

• What about China? The table shows that in 2016 China's GDP per capita was barely above $8,000. Yes, China is a huge economy but it also has a huge population. Inasmuch, the average person in China makes a lot less than a German ($42,161) but considerably more than the typical Indian ($1,709). Notice that China's main growth came after 1979 -- the share of US went from 3% in 1960 to 2% in 1979 only to rise to 14% in the Age of Globalization. Clearly there is a huge catch-up of China to the USA between 1980 and 2016. 
• Contrast China to Germany's share of the USA. Germany began in 1960 at 91% of the USA, rose a bit more in 1980 to 96% and then fell to 73% of the USA in 2016. Clearly German growth per capita was less than the USA in the Age of Globalization. Many countries were catching up to both Germany and the USA. 
• Several countries gained against the USA in both time periods -- South Korea, Israel, and Chile. Of those, South Korea's advance was dramatic from 5% to 14% to 48%. 
• Japan is interesting because that country had the highest catch-up for the whole time (up by 52%) but nearly all of that occurred in the 1960 to 1979 time period. Its economy slipped relative to the USA from 1980 to 2016. Several other countries had the same pattern -- first rising, then falling against US growth: United Kingdom, France, Mexico, Iran, Canada, and Germany. 
• Argentina, Canada, and Germany were the only countries among this group to have a lower share of USA in 2016 than in 1960. Argentina's share fell by 17%, Germany's by 18%, Canada's by 3%.
• Showing greater than a 10% catchup were Luxembourg, Japan, South Korea, United Kingdom, Israel, and China. 
• Data for Russia and Japan are not available for 1960 and 1980. See the table notes. Vietnam has shown some catchup since 1985. 

The world is catching up to the USA in terms of GDP per capita. In some cases, the result is dramatic. Whether it is relations with China or the European Union, these differences can matter. The world has changed and our larger economic relationships should reflect these changes. Perhaps the US has spoiled some countries by letting them bend the rules. It won't be easy to change long-term habits. But it is worth a try.

https://knoema.com/jesoqmb/gdp-per-capita-by-country-statistics-from-the-world-bank-1960-2016?country=United%20States Real GDP Per Capita in 1960,1980, and 2016 In Dollars and  As a Percent of the USA And Change from 1960 to 2016 Source: World Bank

							Change
	1960	1980	2016	1960	1980	2016	60-16
US	3,007	12,598	57,638	1.00	1.00	1.00
Lux	2,242	17,114	100,739	0.75	1.36	1.75	1.00
Japan	479	10,332	38,972	0.16	0.82	0.68	0.52
Korea	158	1,704	27,539	0.05	0.14	0.48	0.43
UK	1,380	10,032	40,412	0.46	0.80	0.70	0.24
Israel	1,229	6,229	37,180	0.41	0.49	0.65	0.24
France	1,338	12,713	36,857	0.44	1.01	0.64	0.19
China	90	195	8,123	0.03	0.02	0.14	0.11
Brazil	210	1,940	8,650	0.07	0.15	0.15	0.08
Chile	533	2,577	13,793	0.18	0.20	0.24	0.06
Mexico	342	2,802	8,209	0.11	0.22	0.14	0.03
Iran	192	2,440	5,219	0.06	0.19	0.09	0.03
India	81	264	1,709	0.03	0.02	0.03	0.00
Canada	2,295	11,135	42,348	0.76	0.88	0.73	(0.03)
Argentina	1,149	2,738	12,440	0.38	0.22	0.22	(0.17)
Germany	2,751	12,092	42,161	0.91	0.96	0.73	(0.18)
Russia	na	3,429	8,748	na	0.27	0.15	na
Vietnam	na	231	2,171	na	0.02	0.04	na
Russia is 1989; Vietnam 1985