SEOUL, KOREA- Since early this year, the growth rate of the gross domestic income has consistently outpaced that for the gross domestic products by a large margin. This is largely because of a favorable turn in the terms of trade owing to a fall in the won-dollar exchange rate and international oil prices. But the rising GDI has not yet translated into a rise in household income as most of the profit is accrued to the corporate and government sectors instead of the household.
According to the Bank of Korea on August 12, the second-quarter GDI grew 2.7 percent from the previous quarter, outperforming the GDP growth rate of 1.1 percent for the same period. Chung Young-taek, BOK's director for economic statistics, said, "The GDI showing a high growth pace like this is highly unusual. As the GDI reflects economic conditions at the ground level much better than the GDP, this may be interpreted as a positive sign in the near future."
In theory, the GDI and GDP should line up exactly: if one person spends $100 in the economy, that should show up as another person's income. But because of measurement errors, these two numbers often differ wildly. During the 1970s the two figures ran at almost the same levels. The annual GDI growth rate in the 1980s (9.6%) began outstripping that for the GDP (8.6%). In the 1990s, the annual GDP growth rate (6.7%) overtook that for the GDI (6.0%) by 0.7 percentage point. Since the 2000s, the difference has widened to 1.1 percentage points, followed by 1.5 percentage points during the 2011-12 period.
Shin Min-young, macroeconomic analyst with LG Economic Research Institute, said, "The fact that the GDI growth rate has increased by a large margin implies that the share of money earned by households has risen." Lim Jin, research fellow at the Korea Institute of Finance, said, "The gap between the GDI growth rate and the household income growth rate is widening. In order to help households increase their income and thereby stimulate private consumption, it is imperative for the government to support small business owners and self-employed merchants to improve their profitability."
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