China, India and Korea will be able to initiate major investments without borrowing from abroad for a longer time.

Last Thursday I compared the BRICs (Brazil, Russia, India and China) economies with the Turkish economy. Figures revealed that Korea has the highest GDP per capita. Korea was followed by Turkey and Brazil while China remained at the top among the rising economies. Korea and India had strong GDP growth rates though not as high as China’s. In other words, if they China and India can maintain the current pace of growth we should expect that they will soon outperform Brazil, Russia and Turkey concerning GDP per capita, unless the latter group initiates a leap.

Productivity growth necessary

Today I will compare savings and investment ratios. The table below shows the total domestic savings and total investments in proportion to GDP. Figures represent the average of the timeframe.

A high savings rate or a remarkable increase in the rate enables a significant increase in per capita income in the following periods. Even though it also implies higher growth rates, this does not guarantee a long-term high-growth trajectory. This depends rather on a considerable productivity gain. Yet, savings rate is an important factor that determines income levels up until a certain level.

The message here is a clear one. China, India and Korea will be able to initiate major investments without borrowing from abroad for a longer timeframe. Besides, these already have high investment rates. On the other hand, the second group of countries that include Brazil, Turkey and Russia have both low savings rates and low investment rates. In other words, the current GDP per capita ranking cited above shows a transient picture. Korea’s position on the top is under no threat. However, it seems that Russia in second and Turkey in third place will inevitably lose their positions, unless they improve their savings and investment rates.

This commentary was published in Radikal daily on 12.01.2013