Capita Income Between Two countries (Australia and Vietnam)
The aim f the paper is to analyze the different status of countries income and what causes the difference in income per capita. It will also look at the reasons why income per capital is not the absolute measure of income status between countries and the paper will as well look at what poor countries should do to improve their economic performances.
Per capita income is the average income for each person in a particular group or country. It is calculated in different entities from small groups to larger groups like a country. The Bureau of Economic Analysis computes per capita income based on total personal income, which includes items like wages, interests’ dividends, and government’s transfers. Income per capita used to compare economic conditions among different nations. Per capita income is used as a measure of prosperity not only among countries but individuals too.
The graph below shows the income per capita between Vietnam and Australia. Vietnam is relatively low as compared to the one of Australia.
Data was collected over 20-year period between Vietnam and Australia to show how the per capita income in these 2 countries has changed over time.
Economic growth is an increase or decrease in the value of goods and services produced in a certain geographical area as compared to an earlier time. Positive growth occurs when the value of a product or good is higher when compared to the previous year. Negative growth on the other hand is when the value is lesser than the year before. Economic is influenced by various factors such as factors of production, measures of productivity and indicators of the presence of fundamentals.
‘There are factors of production that influence economic growth within a country. These include; investment in Human Capital (includes all skills, talents, education, and abilities that human workers posses and the value that they bring to the market place e.g. writing skills, acting skills, talents in music etc.), an investment in capital goods (This involves all good that are produced in the country and then used to make other goods and services e.g. tools, factories, technology etc.)’ (Nake & Vassilev 2002) The more Capital goods a country has the more goods & services they are able to produce.
The other factor of production that influences economic growth is natural resources; these are all the things that are found in or on the earth. Examples of these include land, water, oil, plants, and minerals e.tc. Natural resources are important because countries that have a lot of natural resources are able to use them to produce goods and services cheaply than those countries which have to import the natural resources. Lastly it is the entrepreneurship that is defined as the innovator and risk taker, maybe through starting own business, inventing something new, etc. Entrepreneurship creates jobs and lessens unemployment. A country with a lot of entrepreneurs is likely to have a higher GDP. It encourages people to take risks and in so doing they are able to come with unique commodities and services in different areas such as medical, sports, commerce industries etc. The presence or absence of these four factors determines the country’s Gross Domestic Product for that year.
Production is a process of combining various materials in order to come up with something for consumption. Productivity is a measure of output, and the most common use of productivity measures is to gauge economic level at the national level. Technology must be used in the production process. The production function is a simple description of the mechanism of economic growth.
Countries in the world have different levels of income with some doing very well, others moderate and others doing relatively poor. The income of a country simply means the value of that country’s production or output. The standard measure of a country’s income is based on Gross National Product (GNP) per capita or per head of population. ‘The GDP per capita and economic performance of Vietnam still remains far low when compared with that of Australia.’ Lynn R. (2002).
The fact that each country uses its own currency; this makes it impossible to compare one country with another. International conversions require conversion into a common currency for example $U.S., or other statistical measures that allow comparison. Hence this gives a similarity in the per capita income between countries. There is also the problem of data accuracy that is deemed to give a difference in per capita income between countries. ‘Some countries are not even capable of collecting properly accurate GNP and GNP per capita’ (Wolff. 2004). Composition of data does not always include the same information. For example Australia may include estimates for home grown food in their GNP, while Vietnam may exclude it.
‘There is also need to be considerate of the environmental differences that are likely to result in difference in per capita incomes between countries. This is one of the so-called uncontrollable factors unlike the controllable factors such as prices of goods, promotion, place and product.’ (Faria, 2006). The income per capita also does not put into consideration other factors except those that are economic. It does not put into considerations such factors as health, and the different purchasing powers. Beside that countries need to be aware that the population of the country is also likely o give different out puts hence not a good measure of income per capita.
In measuring per capita income, there are economic activities that are crucial but are not included in the measurement of the income. Economic activity that does not result in income, such as services provided within the family or for barter are usually not counted, yet the importance of these services vary widely between different countries and groups.
Variable that determines per capita income keeps changing every time hence portraying a different picture in the results in the graph below. They keep changing due to the changing factors that are likely to face a country, for instance, political instability may make the currencies of a country to loose it international v alue.
Good economic performance in a country can occur if there is an increase in the number of goods and services. It can also be as a result of production of more expensive goods and services. This is the order that has been created in the world with some countries doing fairly well in terms of economic performance than others. The question that we should however ask is what is it that rich countries do that poor countries do not do to improve their economic?
To improve the economic performance, poor countries are required to embrace democracy. It is quite true that majority of poor countries have a tendency to practice dictatorial rules that prohibit things to be done in a free and democratic manner. ‘Poor countries cannot afford democracy’ is a common phrase suggesting that strong and authoritarian leaders to overcome the various forces that keep them poor for centuries.
In addition to that, for poor countries to improve their economic status, they have to exploit their resources that remain unexploited due to lack of technology, know-how, corruption etc. Poor countries especially in Africa have been known to have rich resources such as minerals, but have remained unexploited and thus cannot be of use to them. Despite that there has been a lot of brain drain in most poor countries because the human labor is not well paid or appreciated and so the people in these areas have to move to areas where their efforts are appreciated and given great remuneration.
Poor countries have remained economically down because they also lack the infrastructural capacity for the production of gods and services. Crucial infrastructures like roads, hospitals, industries have remained fairly undeveloped and because of that production of goods and services have been hampered. Besides that, poor countries need to develop their markets as well as strengthen their currencies so that they can trade profitably with other major currencies of the world.
‘These models discussed above are supposed to increase per-capita income, if the distribution of income within a country is held by a few rich, the small wealthy can increase per capita income far above that of the majority of the population.’ (Lynn R. 2002).
The income per capita can also be increased if international rates are based on a good exchange rate. The same good when sold in Vietnam e g a pound of rice may sell for a much different price in Australia especially depending on the strength of its currency and this may lower the income per capita of another country not favored by the exchange rate. Median income is a great measure of prosperity, because it is not biased by wealthier outliers hence increasing or decreasing some countries income per capita.
‘A common exchange rate will aid in giving the true picture of income per capita among nations, however it is not likely t be accepted by many countries especially those that have had a fairly stable currency.’ (MacDonald & Faris, A. 2010)
The discussion above shows that there is need to adopt a more widely acceptable and fair method of measuring income levels between countries because sometime the use of income per capita is not likely to give the actual picture. There are many factors that are just assumed and which affect he final outcome of the calculation
Breimyer, H. (1950). Factors Influencing Differences between State per Capita Incomes: Southern Economic Journal, Vol. 17, No.2. pp. 140-147
Faria, C. (2006). The origins of economic inequality between nations: a critique of Western theories on development and underdevelopment: New York. Sage Publications
Lynn R. (2002). IQ and The Wealth of Nations Cover: Northern Ireland, Praeger/Green wood
Nake M & Vassilev G. (2002) The World Economy’s Convergence of Per Capita Income: New York, Sage Publications
MacDonald R. & Faris, A. (2010). Pros and Cons of the Currency Union: New York, Edward Elgar Publishing
Wolff. E. (2004) What has happened to the quality of life in the advanced industrialized nations? New York, Edward Elgar Publishing
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