Population Density and International Trade: One Tiny Example

http://blogs.reuters.com/great-debate/2008/11/14/a-long-shaky-bridge-to-recovery/#comment-978

I was just reading the linked commentary by James Saft, a Reuters columnist, who suggests that the U.S. needs to take the same approach that Japan used to pull themselves out of a 15-year recession.  However, it’s not his commentary that I found interesting so much as one of the comments from a reader.  It began with a comment from another reader who remarked that the economic crisis wouldn’t end until housing fell to an affordable level.  (That’s true, but how will the fall ever stop if the trade deficit keeps incomes in a downward spiral?)  Anyway, the comment that really interested me came from someone named “Mike” in Singapore:

I am from Singapore where land is scarce. I am always very envious of you guys in US owning a piece of land at 3.5 times of the annual income. In Singapore, USD235k would only get us a public housing of 3 bedrooms and size of 90 sq meter. It is really pathetic.

If we are looking at private condo, a 120 sq meter typically costs around USD 700k for those in outskirts areas, and could go as high up as USD 1.5mil for a unit in the CBD, absolutely crazy.

For me, I would like to have a garden of my own, a car porch for two cars, a double storey terrace house with 3-4 bedrooms, and probably a unit of 200 sq meter landed property. But this is going to cost me USD 1-1.2 million over here (for a non-CBD location), which is like 10-12 times my household annual income, and I would have to work very hard for it. I just hope that sanity will bring back realistic property prices around the world.

 

(I believe that “CBD” stands for “central business district.”)  Here is a perfect example of the whole premise of my theory.  Mike lives in a country with a population density of 18,000 people per square mile.  Well, OK, Singapore is really just a tiny city-state within the larger country of Malaysia.  But when included with Malaysia, the population density is still 233 people per square mile – almost three times as densely populated as the U.S.  Mike lives in a home half the size of the average American’s and has few of the things that we associate with a high standard of living, things we take for granted.  It’s not because he doesn’t want them; it’s because space is so scarce that it’s priced out of the reach of most people.  And Mike is obviously a relatively wealthy person.  How much worse is it for those further down the economic ladder?   

But while Mike’s per capita consumption is low, he is just as productive as an American when he goes to work.  There is only one way that such a nation can sustain a labor force with high productivity and low consumption, and that is to take jobs from someone else.  And that’s precisely what Malaysia does.  They  rank number 8 on America’s list of countries with whom we have the highest per capita trade deficit in manufactured goods.  Some may say that, “well, that’s because of low wages in Malaysia.”  Hardly!  Malaysia ranks quite high on the list of the world’s wealthiest nations, with purchasing power parity of almost $30,000 per person.  Look at Mike.  Do the math and he’s making about $100,000 per year, yet can only afford a standard of living equal to the bottom third of Americans. 

This is just one tiny example of how population density is a major factor in international trade.  But everywhere you look, it’s the same thing.  The world will never extricate itself from its economic mess until it understands this factor and deals with it appropriately.  I feel for you, Mike, but we want our jobs back.

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2 Responses to Population Density and International Trade: One Tiny Example

  1. m18 says:

    You got this wrong. Singapore and Malaysia are separate countries. Singapore’s GDP per capita is 5 times that of Malaysia. Properties is Malaysia are dirt cheap.

  2. Pete Murphy says:

    m18, I do realize that Singapore is a separate “country.” But, as I said in the post, for the purposes of evaluating the trade effects of my economic theory, I “roll” such tiny city-states into their larger surrounding countries, because geographic borders are meaningless when evaluating economic theories where free trade plays a role.

    Also, I’m sure there are regions, primarily in the uninhabitable mountain regions, where property is cheap. My point is not about property values, but the fact that Malaysia is a crowded place where a shortage of space precludes high per capita consumption.

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