This article uses expenditure‐based purchasing power parities (PPPs) to estimate GDP per capita in comparable prices for 12 Asian countries for six benchmark years during the period 1913–69. The article finds that in 1913 levels of real GDP per capita in several countries were comparable to those in Japan. GDP per capita in Japan and other Asian countries diverged during and after the First World War. The article questions whether Asia's ‘little divergence’ between Japan and other Asian countries dates back to the late eighteenth century. It draws attention to the different resource endowments of Japan, China, and India compared to other Asian countries, and their implications for the development trajectories of Asian countries. The article demonstrates that using historical PPP estimates yields estimates of GDP per capita that diverge from those based on retropolations of the single 1990 PPP‐converted benchmark year. It concludes that historical estimates of PPPs are needed to confirm analyses of comparative economic performance based on available GDP per capita data.

Studies of comparative long‐term economic development have brought to light the ‘little divergence’ that took place within Europe alongside the ‘great divergence’ between Europe and Asia.1 This has helped to sharpen debate about possible reasons for the diverging paths of long‐term economic growth between the North Sea area and the rest of Europe, and between Europe and Asia. In this debate, China, Japan, and India have been used to represent the Asian continent. Just as there is a need to identify and analyse the timing and reasons for the little divergence in Europe, there is scope for further research to enrich our understanding of comparative economic development in Asia. Our understanding of comparative paths of economic development across Asian countries is largely informed by the work of Angus Maddison. It indicates that Asian countries started their development experiences from broadly comparable levels of GDP per capita in the early nineteenth century.2 New estimates of aggregate output over a longer period, particularly for Japan, China, and India, yielded revisions of Maddison's long‐term estimates of GDP per capita. Broadberry dated the start of a ‘little divergence’ in Asia to the second half of the eighteenth century, when GDP per capita in Japan overtook that in China and India.3 Research started to probe the reasons for this little divergence in Asia.4 Before progressing the analysis of this little divergence since the late eighteenth century, consensus is needed on its timing across the whole of Asia. Two issues need to be considered. First, Japan, China, and India together accounted for 80 to 85 per cent of the population of Asia until 1913, but their development experience is not likely to be representative of the whole of Asia. The countries of Southeast Asia were relatively underpopulated for a long time.5 To different degrees they also experienced significant inward labour migration, especially from India and China and to a lesser extent from Japan until the 1930s.6 Different endowments of natural resources (particularly land) and labour in most Asian countries relative to Japan, China, and India may have been the key parameters that determined economic development options and outcomes across Asia.7 Relatively high population density caused economic development in Japan, China, and India to be characterized by the different degrees to which they advanced an ‘industrious revolution’ based on the mobilization of relatively abundant numbers of people for production in manufacturing.8 By contrast, in other Asian countries economic development may have been characterized by processes that created nation states and national economies through internal market integration, particularly during the long nineteenth century, and mobilized natural resources (land and minerals) to specialize export production in primary commodities. Second, while Maddison's work has sharpened the debate about and analysis of relative economic performance and living standards, nevertheless it has methodological issues that require further discussion. There is now a growing understanding that the use of the single benchmark year of 1990 for conversions of GDP per capita with purchasing power parities (PPPs) and retropolation needs further consideration.9 There is concern that the choice of the benchmark year and the use of a single benchmark year may influence the historical levels of GDP per capita across countries. Using a single benchmark year may be appropriate for European countries, as high levels of intra‐European trade resulted in broadly comparable relative price structures. However, non‐European countries most likely had price structures that in the past deviated from the European norm and/or deviated from the 1990 international norm. This is because the relative purchasing power of currencies was not fixed in time, but changed as the forces that govern international trade in goods and services caused domestic price structures to resemble or deviate from international or foreign price structures to a greater or lesser extent.10 The choice of a single benchmark year for the purpose of conversion and retropolation of GDP per capita therefore affects historical estimates of GDP per capita. Prados de la Escosura proposed an alternative approach, using Paasche price indices for countries of which most were OECD members and a short‐cut method for countries and years for which such indices were not available.11 Ward and Devereux based US–UK productivity comparisons reaching back to the 1870s on historical estimates of relevant whole‐economy expenditure‐based PPP, rather than retropolations.12 This work spawned further research into the need for and (im)possibility of making historical PPP‐based conversions and comparisons of sectoral value added and productivity, or overall GDP per capita, including research in the context of East Asia.13 Van der Eng demonstrated that extrapolation and retropolation of GDP per capita data for different benchmark years in comparable units yields very different relative levels of GDP per capita across Asian countries for the same years.14 This influences any assessments of the reasons for these different historical levels of economic performance. In 2018 the Maddison Project Database released new international series of GDP per capita that accommodate the available historical PPP‐based converters.15 Due to the very limited availability of historical PPP‐based converters for Asian countries, the 2018 database retains many of the shortcomings of the single‐year retropolation. There is not necessarily any reason to be confident about estimates of relative levels of GDP per capita thus extrapolated back to the late eighteenth century or further (as in the case of Japan, China, and India) and therefore about the moment when Asia's little divergence started. If the little divergence in Asia started in the eighteenth century and was characterized by Japan surging ahead of other Asian countries, it must have generated levels of GDP per capita in Japan that far exceeded levels in other Asian countries by 1913. Other indicators of economic development should confirm those outcomes. Maddison showed that GDP per capita in 1913 in Japan was around twice the level in other Asian countries. Such relative levels are not confirmed by other indicators. For example, a revision of Japan's historical national accounts reveals that manufacturing industry contributed 15 per cent to GDP in 1913, which is not so different from 16 per cent in the Philippines and 14 per cent in Indonesia.16 Real unskilled wages in Tokyo were not very different from Bengal by the 1910s, and until the 1920s they were below those in cities in Korea, Taiwan, and Manchuria.17 Males born in the 1900s in Japan were 1.9 centimetres shorter than the average for their counterparts in Southeast Asia,18 and significant numbers of Japanese migrated to Southeast Asia before the Second World War.19 On the other hand, the index of numeracy in Japan in the 1910s was high at 99, compared to India's 33 and an unweighted average for Southeast Asia of 80.20 Other indicators of socio‐economic development could be considered.21 The main conclusion from such comparisons is that it cannot be readily assumed that Japan's GDP per capita was twice that in other parts of Asia by 1913. If so, was there no little divergence in Asia from the late eighteenth century? Or has our impression of relative standards of living across Asian countries been a consequence of the backward retropolation of the 1990 benchmark of GDP per capita in the Maddison database? This article addresses these questions with direct comparisons of GDP per capita, based on historical estimates of binary expenditure‐based PPPs, for six benchmark years (1913, 1922, 1938, 1952, 1958, and 1969), across 12 Asian countries: Burma, Ceylon, India, Indonesia, Japan, (South) Korea, Malaya‐West Malaysia, the Philippines, Taiwan, Siam‐Thailand, Vietnam, and to some extent China.22 Such PPPs may be more appropriate for addressing the issue of economic divergence or convergence in Asia, and the possibility that Japan's level of economic development was ahead of the rest of Asia before the First World War, than retropolations of the benchmark year of 1990. The article estimates binary PPPs relative to Japan. Japan is used as the benchmark because it is often hailed as a point of reference for intra‐Asian comparisons of economic development.23 In terms of economic performance, colonial Indonesia and Vietnam may serve as a contrast to Japan, because they are often regarded as colonies where ‘extractive institutions’ introduced by the Dutch and French colonial authorities depressed general living standards to low levels until improvements occurred after independence.24 By contrast, Korea and Taiwan are often seen as two colonies where Japanese rule, although oppressive, implemented policies that established development‐conducive foundations on which these countries were able to build at later stages.25 An additional reason for selecting Japan as the benchmark for comparison is that it was an important driver of the development of intra‐Asian trade before and after the Second World War.26 Hence, if price levels converged across Asia, they may have converged with those in Japan. Japan also had the best statistical reporting system in Asia.27 Time series of Japanese unit prices and estimates of per capita consumption or expenditure are readily available from the 1880s onwards. Unfortunately that is not the case for other Asian countries. Consequently, the estimation of PPPs is limited by the availability of price and per capita consumption or supply data, as well as the availability of data on GDP per capita. For this reason it is not possible to estimate binary PPPs consistently across years and countries. The period 1910–70 was in broad terms one during which the regulatory intervention of governments in markets, particularly through trade, monetary, and industry policies, created significant deviations between domestic price structures across Asian countries.28 As a consequence, deviations of PPPs from currency exchange rates can be expected for that reason alone. The period is also chosen because it precedes the years for which the International Comparisons Project (ICP) provided much more detailed estimates of expenditure‐based PPPs for Asian countries after 1970. A further issue underlying this article is that—with the exception of Japan—it covers a period during which national accounting practices were still in their infancy in Asian countries. This article uses revised GDP in current prices from historical national accounting projects for Japan, India, Indonesia, Korea, Malaya, the Philippines, Taiwan, and Vietnam, but for Burma, Ceylon, and Thailand it can only use the existing and possibly underestimated GDP data. The next section explains the methodology used in this article to estimate PPP‐based converters. Section II discusses the results, in terms of their deviation from exchange rates. Section III uses the estimated PPPs to compare times series of per capita GDP and assess economic divergence in Asia during the years 1910–70. Section IV compares the estimates of GDP per capita with those from retropolations of the 1990 benchmark in the Maddison Project Database 2013. Section V offers some conclusions.

I A major issue in international comparative research in economic history is the fact that many economic variables, such as wages and per capita GDP, are denominated in national currencies. Exchange rates can be used for conversion into a common currency, but several problems are associated with these. Importantly, exchange rates do not take account of the actual domestic purchasing power of currencies, because they tend to reflect the demand for currency as a consequence of only the foreign trade of goods and services, rather than the trade of all goods and services in an economy. Currency exchange rates in principle tend to reflect the differences between the price structures of goods and services that enter foreign trade, rather than the price structures of national economies at large.29 An alternative to exchange rates is approximations of the relative purchasing power of currencies. Thanks to the World Bank and United Nations‐sponsored ICP, and subsequent work by Heston and Summers, such approximations of PPPs are now widely used.30 The methodology for calculating PPPs is simple in principle, although when making use of PPPs we may have to consider the basis for their estimation. For instance, the ICP uses an expenditure approach, rather than the more involved output approach. Essentially, the ICP methodology involves the collection of retail prices of goods and services, and the use of expenditure‐based weights. By country, prices and weights in expenditure can be compared with their international averages, and used to calculate PPPs. The ICP has done this for a growing number of Asian countries for benchmark years, but not all years. For example, from 1970 to 1995, Indonesia was only included in the 1980 round, and the latest 2011 round excluded Burma. To overcome this, Heston and Summers developed a shortcut approach to estimate PPPs for countries not included in the ICP samples, which they applied to the Penn World Tables.31 Data limitations make it impossible to replicate the ICP approach for the missing Asian countries and/or for years before 1970.32 j relative to Japan (per yen) using the Fisher index: p ij is the price of item i for country j, q ij is the quantity of item i consumed per capita in country j, p iJ is the average price in Japanese yen of item i, and q iJ is the quantity of item i consumed in Japan. This article calculates the PPP of countryrelative to Japan (per yen) using the Fisher index:whereis the price of itemfor country, qis the quantity of itemconsumed per capita in countryis the average price in Japanese yen of item, andis the quantity of itemconsumed in Japan. This approach is attractive because of its simplicity. Nevertheless, some factors may impact on the results. First, as explained in online appendix S1, the numbers of matched products for which price data were available were relatively small and were mainly food products. On the other hand, given that rice and some other staple crops generally comprised more than half of average household expenditure, and that possibly 70 to 80 per cent of total expenditure related to private consumption, such products capture a large part of the differences in the domestic purchasing power of national currencies. Second, the quality of the products that could be matched was not entirely uniform. For instance, preferred rice varieties tend to vary by country. Comparability was maximized through the choice of rice prices relating to ‘medium’ or ‘no. 2’ quality rice, but preferences for particular varieties remain; consumers in East Asia prefer short grain, glutinous varieties, while in Southeast Asia they lean towards long grain, drier varieties. Hence, the type of rice used in the product matching may not be equally appreciated across the countries, but it is not possible to account for this. Third, the weights used are in terms of quantities consumed or supplied per person per year. They were obtained as estimates of implicit consumption (quantities of production + imports – exports, divided by population), and from cost‐of‐living and household expenditure surveys. Quantities were not available for all products, and in many cases they had to be approximated as reasonable estimates of consumption per capita. Fourth, where possible, national average urban retail prices were used, because these encompass differences not just in production costs, but also in the costs of relevant services that supplied products to end users, such as transport and distribution costs. For example, rice could be considered the Asian equivalent of the ‘Big Mac’. Like the Big Mac, the retail price of rice comprises the costs of inputs used in agriculture to grow paddy, of manufacturing to mill and polish the rice, and services that transport, wholesale, and retail rice to end users. In some cases retail prices had to be approximated on the basis of wholesale and producer prices, using price ratios of products for which retail prices were available.

II Leaving aside price differences between countries caused by differences and variations in the relative cost of immobile production factors—particularly land—we may expect fluctuations in the discrepancy between currency exchange rates and PPPs between the end of the classical gold standard at the beginning of the First World War and the introduction of variable exchange rates in most Asian countries in the 1980s. Other reasons for diverging price structures are changing trade policies, and the Balassa–Samuelson effect. Data limitations make it difficult to gauge the significance of the last of these.33 The article therefore discusses the other two factors. Until the First World War, most Asian countries used a gold‐exchange standard, except China, Hong Kong, and French Indochina.34 Hence, foreign trade imbalances automatically triggered monetary adjustments that in principle led to modifications in the domestic price levels of countries. To the extent that domestically produced goods and services were trade‐exposed, the PPPs of national currencies would be maintained. Consequently, international trade settled through the exchange rate mechanism in principle caused domestic price structures across most Asian countries to resemble international price structures. During the First World War, most Asian countries suspended the gold‐exchange standard. They resumed it during the 1920s, while French Indochina, China, and Hong Kong continued the silver standard until respectively 1930 (French Indochina) and 1937 (China and Hong Kong). In the 1930s, devaluations of currencies relative to gold and a mounting number of trade regulations were aimed at discouraging imports and encouraging exports. Apart from increasing tariff revenues acquired by governments on imports, trade regulations significantly enhanced discrepancies between domestic and foreign price structures. During the 1930s, most Asian countries opted for a nominal peg, following the pound, the US dollar, the French franc, and the Dutch guilder, with devaluations in 1931, 1933, and 1936, respectively. Table 1 shows differences in the implementation of trade policies across Asia.35 Up to 1913, countries had modest trade protection, with tariffs serving public revenue purposes. Average tariff rates increased significantly during the 1920s and 1930s, while several countries, including Japan, increasingly used quotas to restrict imports as well.36 The exception is the Philippines, where after 1902 the American colonial government continued the Spanish practice of high import tariffs. During most of the 1920s and 1930s, the Philippines used a preferential trade agreement with the US to support Filipino producers, rather than tariff protection affecting all trade partners. Table 1. Import tariff rates of Asian countries, 1870–1992 (annual averages) 1870–99 1900–29 1930–50 1951–73 1974–87 1988–92 Philippines 10.3 13.9 7.6 12.0 13.8 18.6 Burma/Myanmar 4.0 13.2 24.9 26.4 23.1 46.9 Japan 6.2 6.4 5.8 2.8 2.7 3.7 Siam/Thailand 3.6 7.5 21.8 18.2 13.0 31.5 Ceylon/Sri Lanka 6.2 7.7 18.7 20.1 10.7 27.0 Indonesia 4.9 6.0 14.1 21.9 5.6 13.1 India 3.4 7.1 25.7 23.2 34.0 40.7 Malaya/Malaysia – – – 12.5 8.9 9.4 South Korea – – – 10.3 8.2 10.6 China 3.2 3.6 20.4 – – 32.1 Unweighted average 5.2 8.2 17.4 17.1 13.3 23.4 Table 2 confirms that the Philippines was significantly less integrated into intra‐Asian trade networks, and this was because of its orientation towards the US. Two other facts should be noted. First, by 1913 Asian countries had few trade restrictions, but their openness to foreign trade may have been limited. The per capita value of total exports was the equivalent of just one to two pounds sterling in most Asian countries, including Japan, with the exception of Malaya where it was 10 pounds.37 Second, despite the growth of intra‐Asian trade from the 1880s to the 1930s,38 the degree to which intra‐regional trade contributed to the adjustment of domestic price structures to international price structures in Asia was limited, because exposure to intra‐Asian trade varied considerably across countries, as table 2 shows. On the other hand, international commodity markets were relatively well integrated, as comparisons of Japan with the UK and the US during the years 1900–40 reveal.39 Table 2. Share of intra‐Asian trade in trade of Asian countries, 1928–59 (%) 1928 1938 1953 1968 Imports Exports Imports Exports Imports Exports Imports Exports Thailand 63 87 65 83 46 73 47 63 China 58 54 45 64 – – – – Japan, Korea, and Taiwan 43 43 41 63 30 46 33 34 Japan – – – – 27 45 30 34 South Korea – – – – 46 22 55 33 Taiwan – – – – 38 68 53 45 Indonesia 36 45 32 34 41 34 57 40 Indochina/South Vietnam 47 68 31 28 26 33 53 23 Malaya/West Malaysia 70 29 67 28 48 18 65 45 India and Burma 23 26 24 24 19 29 16 24 India – – – – 14 19 15 25 Burma – – – – 52 76 36 8 Philippines 21 9 17 9 12 14 41 42 Ceylon 61 7 62 6 41 20 43 24 Table 1 shows that trade protection persisted after the Second World War, and that in most cases it increased. National tariff rates differed across traded products, with manufactured goods generally attracting the highest rates. For example, in Indonesia the average nominal tariff on manufactured imports was 36 per cent in 1969,40 compared to an overall average of 22 per cent in table 1. The last column in table 1 suggests that tariff protection remained high across Asian countries, except Japan. In particular, the average import tariff on manufactures remained higher than the overall average. For example, in Thailand the average tariff on manufactured imports from 1988 to 1992 was still 42 per cent,41 compared to an overall average of 32 per cent in table 1. Table 1 takes no account of the fact that from the 1930s countries used an increasing range of differential non‐tariff trade barriers (NTBs), particularly bilaterally negotiated quotas. NTBs were also continued after the Second World War and became increasingly restrictive as a consequence of the efforts of governments in several Asian countries to further import‐substituting production of both manufactured and agricultural goods. Most countries agreed to tariff liberalization from the 1970s in the context of rounds of negotiations under the General Agreement on Tariffs and Trade. In addition, during the 1930s, the monetary authorities in most Asian countries suspended the gold‐exchange standard and later the free convertibility of currencies by imposing capital controls, although in different combinations.42 After the Second World War, most Asian countries became members of the International Monetary Fund. This did not prevent their continuation of closed capital accounts with restrictions and controls on monetary flows into and out of the country. Asian countries generally used a dollar‐exchange system. Reserves of mainly US dollars would in principle be used to maintain the local currency at a stable and realistic rate of exchange with the US dollar, and thus gold until 1971. However, many Asian countries experienced current account deficits. Occasional foreign exchange shortages therefore made it difficult for them to maintain a realistic official exchange rate, which contributed to discrepancies between official and unofficial exchange rates. Combinations of trade and monetary policies led to the emergence of ‘black’ parallel markets for currencies, due to the fact that capital controls were generally imperfect and official exchange rates of Asian currencies undervalued. This changed when countries started to liberalize capital controls in the 1970s, restored convertibility, and implemented variable exchange rate regimes. In all cases, except Burma, Vietnam, and China, parallel currency markets disappeared in the 1980s. Table 3 presents the PPPs estimated using the method outlined in section I. For the purpose of comparing GDP per capita with Japan, the exchange rates and PPPs are expressed relative to the Japanese yen. Before the Second World War, exchange rates underestimated the domestic purchasing power of currencies relative to Japan. It seems likely that Japan's trade policies are a factor in explaining the discrepancies between exchange rates and PPPs in 1913 and after. Japan had started to protect its rice farmers through a 15 per cent import tariff in 1904, which increased the domestic price of rice. Japanese farmers also became recipients of an increasing variety of indirect input subsidies, which in turn may have reduced the domestic retail price of rice. Given the weight of rice in the calculations of the PPPs, this may be a key reason for the discrepancies between exchange rates and PPPs in most cases. However, Japan's use of other tariffs—such as those on meat and garments, introduced to protect domestic producers—also added to the cost of living in Japan relative to other Asian countries.43 In addition, most services in Asia were not formally traded across borders. To the degree that retail prices had a domestic service content, the non‐trade exposure of services is also likely to have restricted price convergence. Table 3. Exchange rates and PPPs of Asian currencies per 100 Japanese yen, 1913–69 1913 1922 1938 1952 1958 1969 Burma (rupee/kyat) Exchange rate 152 166 78 1.32 1.33 1.34 PPP 71 63 39 1.00 0.71 1.05 Ceylon (rupee) Exchange rate 152 166 78 1.32 1.32 1.66 PPP 106 – 54 1.43 1.35 0.86 China (yuan) Exchange rate 99a 80 79b 6,371 0.68 0.68 PPP 82a – 73b – – – India (rupee) Exchange rate 152 166 78 1.32 1.32 2.12 PPP 71 59 37 1.03 0.78 0.77 Indonesia (guilder/rupiah) Exchange rate 124 130 51 3.16 10.00 91.25 PPP 68 72 33 3.57 6.47 29.35 Korea/South Korea (yen/hwan/won) Exchange rate 100 100 100 1,662 139 85.94 PPP 56 93 95 9,262 158 43.76 Malaya/Malaysia (Straits dollar/Malaysian dollar) Exchange rate 87 94 48 0.84 0.85 0.85 PPP 54 44 23 1.24 0.63 0.36 Philippines (peso) Exchange rate 99 98 56 0.56 0.56 1.10 PPP 62 50 41 0.91 0.48 0.51 Taiwan (yen/New Taiwan dollar) Exchange rate 100 100 100 4.71 9.73 11.16 PPP 66 58 72 4.13 5.20 5.44 Siam/Thailand (tical/baht) Exchange rate 132 119 64 5.23 5.83 5.83 PPP 107 71 42 3.28 2.94 2.21 Cochinchina/South Vietnam (piastre) Exchange rate 100 91 72 5.70 9.73 32.93 PPP 39 26 33 8.03 8.13 36.03 Tonkin/North Vietnam (piastre/dong) Exchange rate 100 91 72 5.70 998 0.82 PPP 37 25 33 10.10 421 – As discussed, from the First World War onwards, and particularly during the 1930s, increasing tariffs and growing trade regulations, aimed at discouraging imports and encouraging exports, are the likely reason for growing discrepancies between domestic and foreign price structures during the interwar years. For example, in Japan the tariff on rice increased to 35 per cent and the nominal rate of protection of rice to 45 per cent in the 1930s.44 This was a key factor explaining discrepancies between exchange rates and PPPs in 1938, albeit governments in Indonesia, the Philippines, and Indochina had started to take their own measures to support rice farmers in the 1930s.

III This article uses the PPPs in table 3 to convert GDP per capita into national prices and compare them with those of Japan. Arguably, this article's ‘basic’ PPPs cannot in principle be assumed to approximate whole‐economy PPPs. They are largely based on food items, and do not include, for example, capital goods for investment and most goods produced by local manufacturing industries. Data limitations make a whole‐economy‐based approximation of PPPs essentially impossible for all Asian countries across all years under consideration. The availability of price and expenditure data only improved across Asia from the 1970s, which made it possible for the ICP to include more Asian countries in ICP rounds. The only exception to the limited data availability is Japan and its colonies in the 1930s, for which Fukao et al. estimated PPPs relative to Japan for 1934–6 using expenditure and output approaches.45 Table 4 compares the basic PPPs of this article with the more elaborate PPPs for the 1930s and the 1970s. It shows that for both decades the differences from the basic PPPs are relatively marginal, which lends credence to the use of the basic PPPs in table 3. The main exceptions in table 4 are the PPPs in 1974, but these are based on regressions and extrapolations that were ‘subject to wider margins of error than the 1970 data’.46 Table 4. Comparisons of estimated PPPs for Asian countries, 1930s and 1970s 1930s (per yen) 1970s (per 100 yen) Source Fukao et al. Yuan et al. This study This study Kravis et al. Kravis et al. Kravis et al. Benchmark year 1934–6 1935 1938 1969 1970 1974 1975 Methodology W, e M, q B, e B, e W, e extrap. W, e Korea/South Korea 0.86 0.88 0.95 43.76 38.53 60.48 64.21 Taiwan 0.84 – 0.72 4.13 – – – India – – 0.37 0.77 0.63 0.97 0.88 Philippines – – 0.41 0.51 0.53 1.18 0.98 Malaya/Malaysia – – 0.23 0.36 0.36 0.47 0.41 Ceylon – – 0.54 0.86 – 0.79 0.99 Thailand – – 0.42 2.21 – 3.44 2.58 Burma – – 0.39 1.00 – 0.61 – Indonesia – – 0.33 29.35 – 59.42 – South Vietnam – – 0.33 36.03 – 47.32 – A reason why the basic PPPs are comparable to the whole‐economy PPPs is most likely related to both the high share of consumer expenditure in GDP and the high share of rice in the consumer expenditure and personal consumption baskets used in the PPP calculations. In addition, rice was an important wage good that determined a large part of the production costs of non‐rice commodities, products, and services in economies in which most production was still largely the consequence of the productive mobilization of human labour, rather than labour‐replacing capital goods. Lastly, as noted, the retail prices used to estimate the basic PPPs capture not just the raw material production costs of the goods included in the baskets, but also the related manufacturing and service activities that brought the goods from producers to end users. In other words, retail prices reflect a broader range of productive activities than just raw materials. Table 5 shows GDP per capita in current prices for benchmark years converted with the basic PPPs, as far as estimates of GDP in current prices are available. The level of GDP per capita in 1913 is broadly the same in Japan, India, Burma, Taiwan, and Vietnam, and lower than the Philippines and especially Malaya. This contradicts the current estimates in the Maddison Project Database 2013, which show Japan in 1913 at twice the level of GDP per capita relative to other Asian countries.47 The GDP per capita gap between Japan and the rest opens up after 1913, with the exception of Malaya. Table 5 also shows that most Asian countries had a level of GDP per capita that was higher than in China in 1913, and in all cases well ahead of China by 1935. China's economic growth may have suffered from the devastation caused by incessant civil wars that particularly affected the rural areas where most people lived: in 1916–28 various regional warlords clashed with the central government of the Republic of China, in 1927–37 there were communist insurgencies against the Republic of China, and 1931–7 saw armed resistance to the Japanese in north‐eastern China. The extensive famines of 1920–1 and 1928–30 in northern China and of 1936–7 in Gansu and Sichuan provinces also caused setbacks to regional economies.48 A possible reason why the gap between Japan and particularly Burma, Ceylon, and Thailand is pronounced in 1922 and later is that levels of GDP in current prices have not yet been re‐estimated retrospectively for Burma, Ceylon, the Philippines, and Thailand, unlike Japan, India, Indonesia, Korea, Malaya, Taiwan, and Vietnam. Based on the experience of historical national accounts projects, re‐estimation of GDP in current prices may raise the per capita GDP levels of some countries in table 5 relative to Japan. Table 5. GDP per capita in Asian countries, 1913–69 1913 1922 1938 1952 1958 1969 A. In current Japanese yen (1,000 yen in 1952, 1958, and 1969) Japan 98 271 377 72 126 607 Burma 86 152 231 24 42 35 Ceylon – 141 276 40 53 132 China 64a – 67b – – – India 117 225 210 24 51 107 Indonesia 103 145 146 34 42 83 Korea/South Korea 78 104 151 43 55 154 Malaya/West Malaysia 262 563 691 69 117 302 Philippines 166 294 262 45 106 229 Taiwan 99 223 281 52 87 254 Thailand – – 152 43 59 168 Vietnam 78 167 159 25 42 29 B. Index, Japan = 100 Burma 87 56 61 34 34 6 Ceylon – 52 73 55 42 22 China 65a – 18b – – – India 118 79 56 34 47 18 Indonesia 104 53 39 47 34 14 Korea/South Korea 80 38 40 60 43 25 Malaya/West Malaysia 267 207 183 96 93 50 Philippines 168 108 69 63 84 38 Taiwan 95 82 74 71 69 42 Thailand – – 40 60 47 28 Vietnam 80 62 42 35 33 5 The benchmark estimates in table 5 allow us to construct GDP per capita series in PPP‐converted yen that may be more consistent over time than retropolations of a single benchmark year. For that purpose, the benchmark estimates were retropolated and extrapolated for each country, and the resulting series were converted into indices relative to Japan. For 1910–20 the index for each country is an average of the indices of GDP per capita in 1913 and 1922 yen (except for Ceylon, which is in 1922 yen only, and Thailand, which is in 1938 yen only). For 1921–30 the index is derived from GDP per capita in 1922 yen (except for Thailand). For 1931–40 the index is derived as an average of indices of GDP per capita in 1922 and 1938 yen (except for Thailand). For 1949–55 the index is derived from the average of the indices of GDP per capita in 1952 and 1958 yen; for 1956–63 it is derived from the series in 1958 yen; and for 1964–70 it is the average of the indices of GDP per capita in 1958 and 1969 yen. The choice of these sub‐periods is somewhat arbitrary, as there is no reason to assume that the price structure remained unchanged across all countries and throughout each of the sub‐periods mentioned. These indices are used to calculate GDP per capita in constant PPP yen. The indices of GDP per capita in Japan and other countries were expressed as a proportion of GDP per capita in Japan during the years 1910–70 in 1934–6 yen. Figure 1 presents the resulting time series of GDP per capita in Asian countries in 1910–70 in 1934–6 yen. As for 1913 in table 5, before the First World War GDP per capita in Japan was lower than in Malaya in 1912 and in the Philippines, and broadly comparable to India, Taiwan, and Vietnam, while China, Ceylon, Indonesia, Thailand, and Korea were not far behind Japan. GDP per capita in Malaya surged in 1913 when its relatively small economy benefited from the boom in rubber production and prices. Figure 1 Open in figure viewer PowerPoint GDP per capita in selected Asian countries, 1910–70 (1934–6 Japanese yen) Notes: Logarithmic y‐axis. The dashed vertical bars indicate breaks caused by changes in the reference years from 1920 to 1921, 1930 to 1931, 1955 to 1956, and 1963 to 1964 (see section III). Sources: As for tab. 5, except constant price series for Indonesia, 1910–70: van der Eng, ‘Sources’; Thailand, 1910–50: updated annual estimates based on Manarungsan, Economic development; Ceylon, 1910–50: Maddison and van der Eng, ‘Long‐term economic growth’; Philippines, 1910–70: Hooley, ‘American economic policy’. [Color figure can be viewed at wileyonlinelibrary.com] Figure 1 indicates that Japan's GDP per capita started to pull well ahead of that of the other Asian countries during the First World War and the 1920s. A significant difference between Japan and the other countries is that it increased its exports of manufactures, particularly textiles, to other East Asian countries, while other countries remained successful exporters of primary commodities. However, international commodity prices fluctuated significantly in the 1920s and 1930s as a consequence of—successively—overproduction, production restriction schemes, the global crisis, and increasing import restrictions in importing countries. For instance, Malaya's economy experienced the boom‐and‐bust consequences of fluctuating rubber prices.49 In the same way, Indonesia's economy was affected by the fluctuating prices of rubber, sugar, and oil, as well as other commodities.50 Ceylon's economy was highly exposed to fluctuations in rubber and tea prices; the Philippines to abaca, copra, and sugar prices; Burma, Thailand, South Vietnam, and Korea to rice prices; and Taiwan to rice and sugar prices. Unlike in Japan, changing international commodity prices caused fluctuations in the barter terms of trade of these countries throughout the 1920s and 1930s, which limited their opportunities for investment in trade‐exposed manufacturing industries beyond commodity processing. In addition, between 1913 and 1938, the barter terms of trade are likely to have decreased in these countries, compared to Japan. For example, taking 1913 as 100, Japan's barter terms of trade decreased to 91 in 1938, but the unweighted average for the commodity‐exporting countries of Burma, Ceylon, Indonesia, the Philippines, and Thailand decreased to 78.51 In the 1950s, the Japanese economy recovered faster from the setback of the Second World War than other Asian countries. There were a few key developments that set Japan's case apart from that of other Asian countries. Generous American support in various forms, including the US armed forces using Japan as a supply base during the Korean War, assisted Japan's recovery. Also important was Japan's ability to tap into the booming world trade with low‐cost manufactures, unlike other Asian countries. The latter generally resumed exports of primary commodities and continued to endure the vagaries of international commodity prices and terms‐of‐trade fluctuations. These countries’ commitment of scarce resources to engineering structural change often took the form of import‐substituting industrialization. A further significant factor was that population growth remained low in Japan, at around 1 per cent, while it accelerated in most other Asian countries to over 2 per cent per year, thus limiting the growth of GDP per capita there. A host of other factors specific to each country help us understand the growing dichotomy in GDP per capita between Japan and the other Asian countries, as figure 1 shows.52

IV The last task of this article is to compare estimates of GDP per capita on the basis of its historical PPP estimates, with those from retropolations of the benchmark year 1990 on the basis of constant price series. The results in table 6 reveal significant discrepancies between panel A and panels B and C for several countries, but not all. Panel B shows GDP per capita obtained by linking the results in table 5 to GDP per capita for Japan in panel A. Panel C shows GDP per capita obtained by linking the series in figure 1 to GDP per capita for Japan in panel A. Both methods of comparing our results with Maddison's data produce marginally different results, as panels A and B show. Table 6. Comparison of GDP per capita according to Maddison Project Database 2013 and direct estimates, 1913–69 (1990 international GK$) 1913 1922 1938 1952 1958 1969 A. Maddison Project Database 2013 Japan 1,387 1,831 2,449 2,336 3,289 8,874 Burma 685 – 740 449 488 626 Sri Lanka 1,234 1,086 1,225 1,313 1,301 1,461 China 552 – 562 538 690 713 India 673 701 668 629 716 845 Indonesia 869 905 1,057 901 947 1,105 South Korea 485 594 904 835 1,234 2,040 Malaysia 900 1,152 1,361 1,471 1,413 2,005 Philippines 988 1,357 1,440 1,186 1,448 1,750 Taiwan 807 1,084 1,440 1,028 1,290 2,334 Thailand 841 – 826 869 914 1,636 Vietnam 727 – – 694 785 739 B. This study's direct estimates, linked to Japan's GDP per capita in panel A Burma 1,213 1,023 1,500 789 1,113 510 Ceylon – 954 1,790 1,295 1,381 1,927 China 895a – 433b – – – India 1,643 1,449 1,365 788 1,537 1,565 Indonesia 1,446 976 949 1,087 1,110 1,221 Korea/South Korea 1,103 699 980 1,398 1,429 2,258 Malaya/West Malaysia 3,697 3,796 4,487 2,236 3,074 4,417 Philippines 2,335 1,981 1,698 1,461 2,769 3,345 Taiwan 1,314 1,506 1,824 1,669 2,272 3,714 Siam/Thailand – – 985 1,391 1,557 2,453 Vietnam 1,050 1,126 1,029 803 1,099 426 C. This study's extrapolated direct estimates, linked to Japan's GDP per capita in panel A Burma 1,213 1,023 1,259 906 1,113 810 Ceylon 963 954 1,474 1,273 1,381 1,867 India 1,380 1,449 1,360 1,149 1,537 1,554 Indonesia 1,182 976 1,004 1,089 1,110 1,186 Korea/South Korea 837 699 971 1,237 1,429 2,151 Malaya/West Malaysia 2,857 3,796 4,140 2,824 3,074 4,229 Philippines 1,975 1,981 1,910 1,928 2,769 3,163 Taiwan 1,314 1,506 1,876 1,765 2,272 3,587 Siam/Thailand 1,011 1,099 985 1,453 1,557 2,399 Vietnam 1,050 1,126 1,065 803 1,099 720 In broad terms, the historical PPP estimates in panel B yield higher levels of GDP per capita relative to Japan. This is partly a result of this article's use of re‐estimated GDP in current prices in the cases of Indonesia, Malaya, Korea, Taiwan, and Vietnam. As mentioned, in the cases of Burma, Ceylon, the Philippines, and Thailand, the estimates are based on the possibly underestimated levels of GDP per capita that were drawn up during the 1940s–60s, without application of the retrospective benefits of accumulated national accounting experience. Nevertheless, the deviations are more likely to be the result of the deviations of the historical PPPs from the 1990 PPPs that underlie panel A. These deviations of the historical PPPs from the 1990 PPPs are not necessarily the result of the ‘basic’ nature of the historical PPPs, as table 4 has shown. Further research to compile more elaborate historical expenditure or output‐based PPPs is possible, although the unavailability of comparable relevant price data may frustrate this work. For example, to exclude the possibility that this result was a consequence of a significant underestimation of PPPs, a sensitivity test was conducted by estimating PPPs on the basis of wholesale and foreign trade unit prices. Only 13 matches for manufactured products in India and Japan in 1913 and 1922 could be made.53 Unweighted PPPs were calculated, which were respectively 116 and 111 rupees per 100 yen; higher than the basic PPPs in table 3. Assuming that 75 per cent of India's imports were manufactured goods, these were 6 per cent of GDP in 1913, while gross value added in manufacturing was 4 per cent of GDP that year. Thus, attaching a weight of 10 per cent to the PPP for manufactured goods and 90 per cent to the basic PPP from table 1 yields an adjusted PPP of 75 rupees/yen and an Indian GDP per capita, according to panel C in table 6, of 1,302 1990 Geary–Khamis dollars (GK$), compared with 1,387 in Japan. For 1922, the weight of the PPP for manufactured goods was 11 per cent, yielding an adjusted PPP of 65 and a GDP per capita of 1,323 1990 GK$, now well below Japan's 1,831 GK$. Hence, it is more likely that the dissimilarities in GDP per capita levels between panel A and panels B and C in table 6 are consequences of differences between the domestic price structures in each of the benchmark years and the international price structure in 1990. We estimated PPP‐based converters for over 60 data points. Our estimates of GDP per capita are different from received wisdom in most cases, not just for 1913. It is not possible to discuss all discrepancies between our estimates of GDP per capita and those in the Maddison Project Database 2013. To explain the difficulties, we take just one example. For India, average GDP per capita growth was just 0.1 per cent in 1958–69, while the Maddison Project Database 2013 indicates 1.5 per cent. The main reason for the different results is the impact of the PPP estimates on the 1958 and 1969 benchmark estimates of GDP per capita relative to each other and to Japan. A further reason is that we do not know how Maddison or the Central Statistical Office of India spliced the two GDP series in constant 1948–9 and 1960–1 prices in one of six years for which the two series overlapped between 1960–1 and 1965–6. India's inflation was on average 9 per cent during 1958–69, or 100 per cent across the 11 years. At such rates, it is unlikely that all product prices changed synchronously. Consequently, changes in the price structures contributed to different growth rates for the overlapping years, which means that the chosen year for splicing impacts on the resulting average 1958–69 growth rate in the Maddison database. By contrast, our PPP estimates captured part of the change in India's price structures between 1958 and 1969, which contributed to our lower GDP per capita growth rate. The findings in panel C do not sit well with casual impressions of relative standards of living, particularly in 1913. A downward bias in Japan's GDP per capita due to the use of ‘basic’ PPPs cannot be ruled out entirely. Nevertheless, it seems very unlikely that Japan's GDP per capita in 1913 was twice the level of India, as Maddison estimated. In addition, it should be noted that the extraction ratio in India was quite high, at least in 1750, 1807 and in 1947, and high compared to Japan, at least in 1886.54 India was very close to the ‘inequality possibility frontier’. This implies that average living standards were just above subsistence in India for the great majority of people, consistent with generally low wages.55 It also implies that income inequality was very high in India compared to Japan, and that modest increases in GDP per capita yielded only small increases in living standards for the majority of people in India.

V This article estimated PPPs, which it used to convert GDP per capita in current prices into a common currency, the Japanese yen, to facilitate a comparison of the growth experiences of Asian countries with Japan during the period 1910–70. GDP per capita, and perhaps living standards more generally, in several Asian countries were at levels comparable to Japan around 1913, and a significant ‘little divergence’ between Japan and other Asian countries took place from 1913. It is not impossible that a ‘little divergence’ between Japan, and China and India, also took place from the late eighteenth century, but in that case, economic development in India, and to a lesser extent China, must have allowed GDP per capita to catch up again with Japan between 1800 and 1913. Alternatively, Japan could have experienced an economic setback that reversed the little divergence in Asia in the course of the long nineteenth century until 1913. GDP reconstructions for these three countries suggest that neither happened.56 Another possible explanation is that GDP per capita levels in China and India in the eighteenth century have been underestimated relative to Japan, possibly as a consequence of GDP per capita retropolation of the single benchmark year of 1990. If so, further research needs to establish whether the respective domestic price structures of China and India in the late eighteenth century deviated from those of Japan, and possibly from the 1990 international price structure. Either way, this article demonstrates at least two things. First, the choice of a benchmark year for PPPs is crucial, certainly if it can be assumed that national domestic price structures deviate from those internationally or in the comparator country. Second, as this article has shown, trade, monetary, and industry policies exacerbated discrepancies between foreign exchange rates and PPPs of Asian countries, and therefore their respective domestic price structures, to a significant degree. The exact reasons varied from year to year and from country to country, and are not easy to generalize, which demonstrates that further debate on the ‘great divergence’ and its consequences should take greater account of the heterogeneity in long‐term economic development across Asia in terms of processes and outcomes. Figure 2 graphically shows the differences between the conventional view of the little divergence in Asia based on Maddison's estimates of GDP per capita, and the interpretation put forward in this article. The conventional view dated the start of the divergence to the nineteenth century, particularly the Meiji Era (1868–1912). This article identifies the First World War and the 1920s as the era during which the little divergence in Asia took place. During the 1920s, most countries in Asia—except Japan—depended significantly on exports of primary commodities. While Japan's growth experience was essentially generated by the fine‐tuning of commercial institutions, the provision of conducive public infrastructure, and the development of entrepreneurial zest, the growth experience of Southeast and possibly other Asian countries seems to have been largely characterized by market integration in national economies and by the mobilization of hitherto underutilized resources (labour and land) for export production. Particularly in the land‐abundant parts of Asia, the opening up of land for agricultural production led to economic growth. Malaya is an extraordinary case of this process. However, advances in GDP per capita were eroded by adverse movements in the terms of trade and later by sustained high population growth, enhanced by significant inward migration, particularly in the case of Malaya. Figure 2 Open in figure viewer PowerPoint Asia's ‘little divergence’: stylized paths of GDP per capita, 1913–73 (1990 GK$) Sources: Based on tab. 6. [Color figure can be viewed at wileyonlinelibrary.com] Commodity price changes may have been particularly debilitating when their volatility increased after 1913, first as a consequence of disruptions caused by the First World War, then when the postwar boom years caused oversupply and in turn contributed to the global crisis of the 1930s, followed by the first episodes of import‐substituting industrialization as governments sought to diversify economic activity away from primary production towards manufacturing. Despite the disruption of the First World War, this remained the tenet of development policy in most countries. While Japan rapidly developed its export‐oriented manufacturing industries from the First World War, other Asian countries increasingly had inward‐looking economies, particularly from the 1930s. This lasted until the 1970s, when some Asian countries followed Japan on a path of export‐oriented industrialization and economic growth. For some countries this was a staggered process that lasted well into the 1990s, when the World Bank labelled this development the ‘East Asian miracle’.57 Whether a miracle or not, it allowed Asian countries to catch up with Japan and reverse Asia's little divergence in the twentieth century.

1 For example, Fouquet and Broadberry

2 Maddison's database is now known as the Maddison Project Database 2013, https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2013 (accessed on 15 June 2018).

3 Broadberry

4 For example, Dong, Gong, Peng, and Zhao, ‘Little divergence’.

5 For example, van der Eng

6 Huff and Cagiano

7 van der Eng

8 Sugihara

9 Bolt and van Zanden

10 Heston

11 Prados de la Escosura

13 For example, Yuan, Fukao, and Wu, ‘Comparative output’; de Jong and Woltjer

14 van der Eng

15 Inklaar, de Jong, Bolt, and van Zanden, ‘Rebasing’.

16 Fukao, Bassino, Makino, Paprzycki, Settsu, Takashima, and Tokui, Regional inequality; Hooley van der Eng

17 Allen, Bassino, Ma, Moll‐Murata, and van Zanden, ‘Wages’, p. 28; Cha

18 Database underlying Baten

19 Shiraishi and Shiraishi Japanese in colonial Southeast Asia.

20 Crayen and Baten

21 Booth and Deng

22 There is discontinuity in geographical coverage and/or the naming of each country. India was partitioned in 1947 into India proper and Pakistan; Vietnam was divided during 1955–75 and part of French Indochina before 1955; Siam became Thailand in 1939; Malaya became part of Malaysia in 1963; Ceylon became Sri Lanka in 1972; Burma became Myanmar in 1989; and the Netherlands East Indies became Indonesia in 1945. We use the same boundaries as the Maddison Project Database 2013.

24 See, for instance, Murray Development, on French Indochina.

26 Sugihara Petri

27 Better statistical reporting may be perceived as indicating superior state capacity to foster economic growth in Japan relative to the rest of Asia. However, that takes no account of the exact intervention in markets that state capacity facilitated, and whether it enhanced or inhibited growth.

28 Price structures also varied across regions within countries, which had implications for geographical income distribution. It is not possible to take account of this in the context of this article.

29 Kravis

31 See Penn World Tables, http://www.rug.nl/research/ggdc/data/pwt/ (accessed on 16 March 2016).

32 They also stand in the way of extending Prados de la Escosura

33 Samuelson

34 van der Eng

35 The ratio of the trade tax revenues and import value is an imperfect indicator of how governments used import tariffs. For example, in Japan the average tariff was low, but the tariff on all dutiable imported goods was 20% by 1913, and 24% in 1931; Yamazawa

36 Tab. 1 does not account for non‐tariff trade barriers such as quotas.

37 van der Eng

38 Sugihara

39 Takagi

40 Myint Southeast Asia's economy, pp. 250–1.

41 Calculated from the database for Nicita and Olarreaga, ‘Trade’, http://go.worldbank.org/EQW3W5UTP0 (accessed on 17 March 2016).

42 For example, in the case of Japan, see Takagi

43 Yamazawa

44 Hayami Japanese agriculture under siege, p. 42.

45 Fukao, Ma, and Yuan, ‘International comparison’; idem

46 Kravis, Heston, and Summers, ‘Real GDP’, p. 238.

47 GDP in India in 1913, 1922, and 1938 refers to India before the 1947 partition. The Maddison Project Database 2013 shows that in 1950 the GDP of India proper was 11% higher than for India, Bangladesh, and Pakistan together. Consequently, prewar GDP in India proper may be underestimated relative to Japan.

48 Differences in the methodologies by which GDP and PPP‐based converters were calculated for 1912 and 1935 may also have affected the estimated change in GDP per capita in China.

49 Huff

51 Calculated from the database for Blattman, Hwang, and Williamson, ‘Winners and losers’.

52 For Southeast Asia see, for example, Myint Southeast Asia's economy.

53 Sources: Prices and Wages in India; Statistical Abstract for British India; Review of the Trade of India; Japan Statistical Association, Historical Statistics, CD‐Rom, tab. 17‐17.

54 Milanovic, Lindert, and Williamson, ‘Pre‐industrial inequality’, p. 263.

55 Allen et al

57 World Bank East Asian Miracle.

Supporting Information Filename Description ehr12880-sup-0001-SuppMat.pdf811.7 KB S1. Data sources for the calculation of PPPs Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.

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