Bilal9
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A country's look is more closely aligned with the GDP in Purchasing Power Parity(PPP) than Nominal. Because PPP compare things with one yardstick (US market) than Nominal which is subject to exchange rate manipulation. Developing world's local currency is artificially undervalued relative to US Dollar which starts to gain value once those countries catch up with the developed countries. exchange rate sometimes fluctuates wildly often local currency loose value massively against US Dollar which will collapse the Nominal GDP. If our Taka suddenly lose half of its value aganist the US Dollar and start trading at 170 per Dollar, our nominal GDP will show just 200 billion Dollar rather than 400 Billion currently now, but GDP PPP will remain the same. Now if anyone thinks, GDP nominal is the real yardstick, he may think our agricultural+Industrial+Service output suddenly became half, which is not the case. Only Taka lost value, but real things on the ground remain the same.
Indonesia, Vietnam has nominal GDP Per capita of just 4000 US Dollar. But those countries look way more developed than that measly 4000 Dollar nominal per capita GDP suggests. You can only truly grasp their real development when you will consider their GDP PPP per capita which is 13000-14000 US Dollars range. A 100 Dollar bill in Indonesia or Vietnam can buy goods and services 3 times more than it can in Japan, USA and Western Europe. This is why prosperity or development should be compared with GDP PPP per capita rather than nominal. Nominal is only important when goods and services are traded internationally. That is the only time when local currency's real value become meaningless and Dollar's exchange rate becomes the only denominator.
Thanks @Homo Sapiens bhai, this did enhance my understanding of the developing economies. I am no economist.
I can understand why Indonesia's GDP per capita PPP remains higher than ours (having all the natural resources they have).
However I don't understand how Vietnam's is so much higher than ours (especially in terms of their apparel industry - for example, having a lot less backward integration than we do). Plus their natural resource situation is kind of at par with ours.
In defense of Vietnam it is true that,
- Their electronics assembly sector is a lot larger than ours, much more developed (see point three below).
- They are helped by bordering China, which can supply a huge part of their raw material needs,
- They are also helped by geography - in that they are very close to Taiwan, Korea and even Japan, so that they get copious FDI from these countries to do subcontracts,
By the way GDP Per capita PPP was as below for 2020 in US dollars.
Bangladesh - $5138
Vietnam - $8650
Indonesia - $12,072
That of India actually fell to $6503 (Thank you Modi and Nirmala for Notebandi and other f*ckups which started in 2017-18).
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