Posts tagged real

Table of Types of Protectionism

Type of Protectionism Definition Real World Example + Link
Tariff It is the tax on imported goods, which could be imposed on specific products. Japan imposes tariff on imported rice.Article Link: Click Here
Quota It is a limit to the imports set by the government. The trading economy can only export maximum amount of goods to the economy that is imposing quota. European Union imposes quota on Japanese cars.Article Link: Click Here
Subsidy It is the sum of money given to the weak industry in order to maintain the job places that it provides. The Japanese government is giving subsidies to Japanese rice farmers.Article Link: Click Here



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Limitations of GDP (Gross Domestic Products)

Many economists rely on GDP (Gross Domestic Products) to analyze and compare economies. However, there are several limitations of GDP as all macroeconomic statistics do.

One of the limitations is that ‘nominal’ GDPs do not take into account that there are inflations and deflations. So let’s say that there was 10% inflation and the GDP increased 10%. Some could say that GDP has increased by 10% and that is economic growth. However, it these people didn’t take into account that in fact inflation has caused this increase in GDP. So this is one of the limitation of ‘nominal’ GDP. There is another GDP called ‘real’ GDP that takes inflation/deflation out of the GDP and tries to measure the ‘true’ GDP of an economy.

The second limitation is that GDP does not measure negative externalities. For example, the CO2 emission produced by economic activity would not be considered in measuring GDP. Also, depletion of some resources are not considered either. So, this limitation is greatly criticized by ecological economists.

Another limitation is that GDP’s could change due to change in exchange rate to US dollar. Notice how GDP is calculated in USD. So GDPs of foreign countries would change due to their change in currency value. For example, Japan’s recent GDP would rose due to their strong yen. So, change in currency values could change the GDP. However, this is not the problem of United States because the country uses USD.

There is one last limitation to GDP. It is that GDP’s do not measure black markets and illegal economic transactions. For example, if some drug dealer sells $1 million dollar of drugs to some country this will not be counted in the GDP. Some people will say that these kind of economic activities would comprise only a meager proportion of GDP, however, United States, for example, has 10~20% of illegal black markets to its GDP.

In sum, these were the limitations of GDP. Despite these limitations, GDP is considered to be one of the best methods of measuring/comparing economies.

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Analysis on OECD Country Korea

Data source: World Bank, World Development Indicators

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
$3.69b $3.02b $8.90b $21.5b $63.8b $96.6b $264b $517b $533b $845b

I have researched about Korea, one of OECD countries, on its GDP. The graph above is the ‘norminal’ GDP, which doesn’t take account for the inflation/deflation.

As you see, Korea had significant economic growth since 1975. Backed up by government’s economic reforms, Korea experienced an exponential economic growth. The chart above shows the norminal GDP since 1960 to 2005.

Korea has experienced near-bankruptcy in 1997 due to lack of foreign currencies. As you can see in the graph, the GDP plunged down from $517b to $345b. It was because they had virtually no foreign currencies (especially USD). Korean government could not pay off debts that accumulated during trades with foreign countries. They only had $2.0 billion, which was too short to pay the debt of $19.5 billion. It did have money to pay of its debt by Korean currency Won, but the lenders would not accept the weak, invaluable Korean currency at the time.

Nevertheless, the government had succeeded in paying off all the debt at 2001, and the economy recovered. This could be seen from the graph that the GDP had recovered to the previous GDP of 1995.

In 2007, Korea’s GDP hit $1.05 trillion due to increased exports. It was the year that Korea exported so much that it dramatically lifted up its GDP by significant degree. However, as 2008 global economic recession started, the GDP plunged to $929 billion due to decreased exports.

So, this was the short analysis of Korean GDP from 1960’s to 2008. Before 1960’s, the GDP of Korea was not recorded because the country’s economy was devastated by wars. So it GDP before 1960’s does not mean anything significant.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
$13,300 $16,100 $19,400 $19,400 $17,800 $19,200 $22,600 $24,500 $25,000 $25,800

The GDP per capita of Korea has been increasing since 2000. It has almost been doubled compared to 2000 and 2009. This means that Korean people’s wealth have been double in 10 year time. In my opinion, this is rather astonishing. With increased GDP per capita, many companies would be shifting their markets to Korean domestic market because of doubled wealth of each person. The developed domestic market will solve many of Korean companies’ dilemma of too much dependency on foreign markets especially US market, which is the biggest market of the world.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
10% 9% 5.8% 6.2% 3.1% 4.6% 4% 4.8% 5% 2.2%

GDP real growth rate for Korea has been declining. As you see in the graph, its showing the declining trend for Korea’s real growth rate. This low real growth rate is the concern for Korea right now, however, many experts consider this a temporary consequence of global recession.

“Year”,”Value”
“2000”,”13300″
“2001”,”16100″
“2002”,”19400″
“2003”,”19400″
“2004”,”17800″
“2005”,”19200″
“2006”,”22600″
“2007”,”24500″
“2008”,”25000″
“2009”,”25800″

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