REAL GDP IN PRE‐WAR EAST ASIA: A 1934–36 BENCHMARK PURCHASING POWER PARITY COMPARISON WITH THE U.S.

Abstract

This article provides estimates of purchasing power parity (PPP) converters for expenditure side GDP of Japan/China, Japan/U.S. and China/U.S. in 1934–36 through a detailed matching of prices for more than 50 types of goods and services in private consumption and about 20 items or sectors for investment and government expenditure. Linking with the earlier studies on the price levels of Taiwan and Korea relative to Japan, we derive the mid‐1930s benchmark PPP adjusted per capita income of Japan, China, Taiwan and Korea at 32, 11, 23, and 12 percent of the U.S. level respectively. These estimates correct the consistent downward bias in East Asian income levels based on market exchange rate conversions. Compared with Angus Maddison's estimates based on the 1990 benchmark back‐projection, our current‐price based result are 18 and 44 percent lower for Japan and Korea, and 4 and 10 percent higher for Taiwan and China respectively in the mid‐1930s. We develop a preliminary theoretical and empirical framework to examine the possible source of the biases in the back‐projection method. The article ends with a discussion on historical implications of our findings on the initial conditions and long‐term growth dynamics in East Asia.