Since 1960, GDP per capita gap between G7 countries and Turkey has not changed much.

As you might remember, in one of last week’s commentaries, I criticized a figure used in recent remarks of Central Bank officials. The figure compared per capita income in Turkey to those in South Korea in the US. Without repeating the criticisms I raised, I will try to make a more proper comparison as I did several times before on this column. Apart from my criticisms for the Central Bank’s comparisons, I want to update the figure for two reasons. First, it is a vitally important comparison an second, I believe it will be useful for new readers (on the assumption that I have new readers, of course).

Level of development

Inter-country income comparisons give valuable clues about relative levels of development. Yet, one needs to be careful when comparing income levels in different countries. For comparisons based on per-capita income, for instance, results might be misleading if income levels in different countries are converted to a selected currency (dollars, let’s say) and then divided by population.

The chief reason is that currency conversion does not necessarily reflect purchasing power parity. For instance, a person who earns the average income in Sudan would starve to death on that income in Switzerland. In Sudan, he or she can afford an average life standard as staple food products, bread for example, are much cheaper in Sudan than in Switzerland.

In order to avoid such complexities, GDPs are recalculated so that they reflect the purchasing power parity of consumers. GDP series at purchasing power parity are released by the United Nations, the World Bank and the IMF, starting from 1980. These series do not have large differences. Another series, Penn World Tables, start from 1950 and is widely used in academic studies. In this series, Turkey has low GDP per capita figures probably because old GDP data is used. But it is possible to compare Penn’s figures with other databases for the years after 1980 and find out the proportional difference, and apply it to derive the figures for the 1950-1979 period.

Income gap

Below, table 1 shows the change in GDP per capita in comparison to the G7 average for Turkey and for South Korea, a success story in terms of closing the income gap with developed countries. I took ten-year averages for comparison.

So, here is the picture: since 1960, GDP per capita gap between G7 countries and Turkey has not changed much. But there was an evident improvement in a couple of last years. Turkey’s GDP per capita in proportion to the G7 average is expected to jump from 35 percent to the historical 26-29 percent interval. This obviously is a positive development. When South Korea is added to the picture, however, the positive outlook for Turkey fades away. I believe that this is a blatant reality.

This commentary was published in Radikal daily on 13.10.2012