the __earthinc

Punching bag of the day:

PENANG: Malaysians from all walks of life are better off now than four years ago.

Second Finance Minister Tan Sri Nor Mohamed Yakcop said the country’s per capita income had risen by 40% between 2004 and 2007, from RM15,819 (US$4,163) to RM22,345 (US$6,452).

“If we compare in terms of US dollar, the per capita income has risen by 55% during the period due to the depreciation of the dollar against the ringgit. [Malaysians better off than four years ago. The Star. February 10 2008]

I am not so sure how the Finance Minister gets the 40% increase. I approximate that there was a 13% real increase in GDP per capita instead.

I did my own calculation and using approximated figures, I estimated that Malaysian GDP in real terms has increased approximately 20% since 2004. Remember, these are based on approximated figures and this reminder is especially important when the official GDP for Q4 2007 has yet to be release. It is expected to be release no later than February 29 2008 but the Finance Minister probably has access to such information regardless. The population sizes are approximated figures as well. Still, a 40% increase sounds awfully high.

One could get to a higher figure if the MYR is converted into USD (without considering purchasing power parity). In USD terms, there was an increase to approximately 31% in GDP per capita. If one reconverts the USD figures into MYR using 2007 nominal exchange rate instead of using the rate corresponding to the respective years, one will get 31%. This may correspond to the Minister’s 55% figure.

It is worth noting that the 31% and 55% figures are meaningless as a measure of well-being because most Malaysians do not earn in USD and spend in MYR. Instead, they earn in MYR. This makes the 13% and the 40% figures more relevant than the same figures read in USD.

I constructed the table below to summarize what I am trying to highlight.

For the full version of the workings, you may download it here.

Tony Pua is right about we would need to grow about 12% per year to get the 40% figure.

To achieve 40% growth, Malaysia must be growing in excess of 12% per annum. Hence, to grow by 40% over 3 years, with a population growing at just under 2% per annum, that will actually make Malaysia the fastest growing economy in Asia, outstripping even China and India. [Malaysian Income Rose by 40% over 3 years? Philosophy Politics Economics. February 10 2008]

I have included his 12% scenario into the calculation in the file if you are interested in it.

p/s — Could it be possible that the Minister included inflation in his calculation? If so, we need a GDP deflator. Or nominal GDP as data instead of real GDP. Or inflation rate.