RAFFLES INSTITUTION

H 2021 YEAR 6 TERM 1 TEST GROUP 2

Higher 2 ECONOMICS

Table 1: Selected Economic Indicators of 2019

Russia China
GDP per capita (constant prices, in USD) 12,011 8,254
Real GDP Growth Rate (%) 1.3 6.1
Inflation Rate (%) 4.5 2.9
Unemployment Rate (%) 4.6 4.3
Human Development Index 0.824 0.761
Sources: Various

Discuss whether the above statistics are sufficient in concluding that Russia has a higher standard of
living compared to China in 2019.
[25]

Introduction
 Define standard of living –Material SOL refers to the quantitative aspect of well-being using
the amount of goods and services an average citizen can consume – measured using real GDP
per capita. Meanwhile, non-material SOL refers to the qualitative aspect of life – measured
using access to education, healthcare, amount of leisure time and etc.
 The above statistics may allow for comparison about the current SOL between China and Russia,
but it is limited in its ability to accurately compare the SOL between the two countries due
to the failure to account for differences in income disparities, cost of living, data collection
difficulties as well as qualitative aspects of SOL, among other things.
Thesis 1 – The GDP per capita statistics suggest that Russia has a higher material and non-
material SOL than China.

 From the given statistics, Russia has a higher real GDP per capita compared to that of
China.
- Real GDP measures the monetary value of all final goods and services produced within the
geographical boundary of a country in a given period, after accounting for changes in the
price levels. The GDP per capital value – measures the ability of an average citizen to
consume goods and services – is derived by dividing the total monetary value of all final
goods and services produced within the geographical boundary of a country at constant
prices divided by the size of the population in that country.
- Russia has a higher real GDP per capita compared to China, suggesting that an average
Russia has a higher relative purchasing power and hence is able to consume more
goods and services than a citizen in China. This reflects that a Russian has a higher level
material standard of living compared to a Chinese in 2019.
- With a higher real per capita income, an average person in Russia will also be better able to
afford better quality healthcare services and engage in recreational activities, resulting
in a higher non-material SOL compared to a Chinese.
- In addition, a higher real GDP per capita in Russia will allow the government to collect a
larger amount of tax revenue than in China. As such, the Russian government can
invest in key social infrastructures that will result in a higher non-material SOL for an
average Russian compared to a Chinese.
- Hence, the above statistics suggest that an average resident in Russia enjoys a higher
material and non-material SOL compared to a resident in China.

Thesis 2 – The real GDP growth statistics suggest that Russia has a higher non-material SOL
than China.

 From the given statistics, Russia has a lower real GDP growth rate compared to that of China.

1
 - Even though the GDP per capital at constant prices is higher in Russia, the rate at which the
real GDP is expanding is slower than in China.
- A faster growth of real GDP is generally paired with dramatic declines in air quality and its air
pollution will worsen at a faster pace than its rate of real GDP growth, suggesting a clear
tradeoff between economic growth rate and the environmental quality which includes the
quality of air and carbon emission rate.
- However, beyond a certain level of GDP per capita (or income level), the real GDP
growth is matched by significant reductions in carbon emission, implying that
environmental costs are not an inevitable result of economic progress.
- The higher GDP growth rate in China of 6.1%, driven largely by the manufacturing sector
that relies on a higher rate of resource utilisation and depletion. This generates negative
externalities like pollution, road congestion and environmental degradation, with
accompanying rise in external costs such as health care costs and longer commuting time
etc.
- Meanwhile, the pace of increase in production in Russia is slower at 1.3%, suggesting
that economic growth is more sustainable. As such, the increase in real GDP does not
come at the expense of environmental degradation and worsening air quality.
According to the Environmental Kuznets Curve (EKC) hypothesis, environmental quality
declines in the early stages of economic growth, but beyond a certain level of income per
capita, the trend reverses as income rises, generating the EKC inverted U-curve. The reason
being, beyond a certain level of per capita GDP, the primary driving force of long-term
economic growth is improved technology and higher productivity. As such, production of
goods and services become less reliant on pollution inducing raw materials as there
is a shift from industrial to service sector as seen in Russia, resulting in a lower
environmental impact.
- Hence, there will be a significant reduction in carbon emission and improvement in the
quality of environment in Russia with a lower rate of real GDP growth compared to China
as the government implements necessary environmental policies/regulations. This will
translate into a higher non-material SOL in Russia compared to China.
Thesis 3 – The HDI statistics suggest that Russia has a higher SOL than China.

 The Human Development Index (HDI) is a more comprehensive indicator that takes into
account of changes in both material and non-material SOL.
 The index takes into account of life expectancy, basic education (mean years of schooling and
expected years of schooling) and minimal income (gross national income per capita adjusted to
purchasing power parity standard – if PPP holds true, the same goods and services will cost the
same with $1 in Moscow and Beijing).
 The inclusion of education and health indicators is a sign of successful government policies in
providing access to important merit goods such as health care, sanitation and education.
 A higher HDI score of 0.824 reflects a higher material and non-material SOL in Russia
compared to China, allowing one to conclude that the SOL in Russia is higher than that of
China. However, it is a qualitative index that includes yardsticks that are subjective and difficult to
measure.
Anti-thesis 1 – The unemployment statistics suggest that Russia may not have a higher SOL
than China.

 Unemployment refers to the situation where people who are actively seeking work but
cannot find jobs. The labour force/economically active population refers to persons aged 15
years and over who are either employed or unemployed during the reference period.
 The higher rate of unemployment in Russia of 4.6% compared to China of 4.3% suggests
that there is a larger proportion of the workforce are able and willing to work but cannot
find jobs. As such, as a share of the workforce, there are less people who have access to
employment and hence access to a stable income in Russia compared to China. This limits
the amount of goods and services an average resident in Russia can consume compared to a
Chinese. As such, a Russian may experience a lower material SOL compared to a Chinese
due to a lack of stable income.
 Additionally, a higher unemployment rate in Russia compared to China also implies a higher
crime rate index. Being unemployed in itself represents a situation that increases both motivation
and opportunity for crime – inducing an agent to weigh his cost/benefit in engaging in a crime. As

2
 such, the likelihood of committing a crime increase when the marginal benefit from
stealing/engaging in an illegal activity to make monetary gains outweighs the marginal cost of
imprisonment. As a result, a higher rate of unemployment increases criminal activity,
reducing the non-material SOL a Russian below that of China. This situation is further
worsened by the presence of large migrant population in Russia from the former Soviet countries,
competing for jobs with the locals and occupying jobs in the manufacturing sector. As such, the
unemployment rate statistics are limited in concluding that Russia has a higher SOL in
Russia compared to China as it does not provide any information on who are filling up the
available vacancies.
 It is also important to note that unemployment data do not necessarily reflect the true level of
unemployment and hence loss of incomes in countries as it does not account for the level of
underground economy in these countries. If the size of the underground economy in China is
larger than that in Russia, then the unemployment figures presented in the table have understated
the difference in the actual level of material SOL in both countries.

Anti-thesis 2 – The statistics are limited in explaining that Russia has a higher SOL compared
to China due to absence of PPP-adjusted data, income distribution and other measurement
difficulties.

i. Lack of PPP-adjusted data

 Typically, real GDP per capita is the standard measure for assessing SOL within a
country. However, for cross-country analysis, real GDP per capita at PPP rates must
be used.
 The use of constant GDP per capita (measured in USD) as a means to compare SOL
between Russia and China is inadequate as it is calculated using the current market
exchange rates. However, such exchange rates tend to fluctuate frequently as they are
affected by factors influencing the demand for and supply of the currencies in the foreign
exchange market. Thus, the GDP values (measured in USD) of countries will lend
themselves to fluctuations and do not demonstrate the actual purchasing power of
the income of an individual in the different countries.
 The real GDP per capita figures in the table do not account for the differences in
cost of living (COL) between the two countries. If the COL in Russia is higher than that
of China, basic necessities such as food, healthcare and housing are significantly more
expensive in Moscow than in Beijing. As such, the higher GDP per capita (constant
prices, in USD) of Russia is likely to have overestimated the goods and services that an
average resident in Russia can consume compared to a resident in China. Hence, the
material SOL in Russia is overstated compared to China.
 To address this concern, countries should use purchasing power parity (PPP) exchange
rate for cross-country comparison. By using the PPP-adjusted exchange rates, the GDP
per capita figures of Russia and China are converted to a common currency - PPP
adjusted GDP (USD) which will account for differences in cost of living between the
two countries and thus make the comparison of material SOL between them more
accurate. Without PPP exchange rate adjustments, the difference in material SOL
between Russia and China is overstated.

ii. Differences in income distribution have not been accounted for in the GDP figures
 No information provided on income distribution – no data on the degree of income
inequality (Gini coefficient).
 Historical trends suggest that Russia has one of the highest degree of income
inequality, implying a significant disparity in real income growth between the top and
bottom income deciles. During the post-Soviet era, there has been a rise in the number of
oligarchs who now control a large part of the wealth in the country. Consequently, the
income inequality is observed to be significantly higher in regions where there is a more
prominent presence of oligarchs.
 If the Gini coefficient in Russia be larger than that of China, despite having a higher real
GDP per capita as given in the table, the higher per capita income will be less equitably
distributed in Russia than in China as the rise in real income is mostly held by the rich
minority in Russian. Hence, the SOL of an average person in Russia may not be higher
than that of China as the GDP per capita figures in the table do not convey

3
 information about who gets to enjoy the goods and services produced in the
country as they do not reflect differences in income distribution.
 Therefore, despite the higher GDP per capita in Russia than in China, the material
SOL for an average Russian may actually be lower than that of a Chinese if the
income is more unequally distributed.
 As such, there is a need for additional data on the income distribution such as the Gini
coefficient in order to measure and compare the material SOL of both countries

iii. GDP values does not take into account of non-marketed activities and the presence of a large
informal sector.
 GDP per capita values in China maybe understated due to exclusion of non-
marketed activities and the presence of a large underground economy compared to
Russia.
 China’s shadow economy accounts for around 15% of GDP, and includes the
underground economy that are not recorded by the government for the purpose of
escaping from tax and social insurance burden. It also includes the informal sector that
consists of all legal economic activities conducted by individuals, at home or in
small enterprises, which are not recorded by the official statistics department.
 Similarly, Russia saw a marked growth of the shadow economy in Russia during the post-
Soviet era. However, relevant mechanisms were instituted that drove economic
agents toward the formalization of their activities. This enabled market sellers to
avoid the “free-rider problem”, raising their willingness to take steps to formalize economic
activities. As a result, the shadow economy has been shrinking over the years,
although some facets of it have remained or moved to the online trading sector.
 On the contrary, the size of non-marketed activities are likely to be bigger in China
than in Russia due to the absence of appropriate market place for many households
to sell their products. Rural China is less commercially developed and a larger share
of the total production takes place at home, including food preparation, tailoring own
clothing, handicrafts. Such productive labor services are not marketed and hence are
excluded from calculation of GDP figures.
 As such, the GDP per capita figures in the table and hence the actual level of
material SOL may also be inaccurate/understated in China compared to Russia
where the data is better reflective of the actual level of material SOL since the size of the
shadow economy is significantly smaller.
 Other factors such as data collection and accuracy may also limit the ability to make a
comparison of the SOL in both countries.
- For example, it is relatively easier to collect data from developed countries like Russia
as there is availability of advanced, compulsory statistical services which helps to
further increase accuracy of data collected compared to developing countries like
China [less robust data collection system, data is not able to be collected in a timely
fashion].
- Hence, key economic indicators like GDP figures tend to be more comprehensive and
accurate in developed countries like Russia than developing countries like China and
this might reduce the efficacy of the data provided in allowing one to accurately
compare the SOL between the two countries.
Anti-thesis 3 – The statistics do not take into account of other factors that influence the non-
material SOL.

 Data presented in the table do not include qualitative aspects of life ie. non-material aspects of
SOL that are equally important in helping to make a judgment about the level of SOL in the two
countries. Examples of such indicators include crime rates, civil liberties, literacy rates, life
expectancy rate, political freedom that includes freedom of speech and political transparency.
 However, such data may not be easy to compile as these are mainly qualitative indicators.
Russia and China differ in their culture, social fabric and standards and expectations of what
constitutes as basic human rights. In addition, such information will usually be subjected to
different interpretations and may be normative in nature.
 Although, Russia and China have seen significant economic reforms in the last couple of
decades, it has come at high social cost and infringement of civil rights. In both these

4
 countries, there is a growing movement of “illiberal democracy”, with President Putin declaring
that the concept of liberal ideas has become obsolete.
 Nonetheless, official data in China suggests that crime rates have fallen in recent years,
owing to the social credit system that has played a huge role in bringing down crime. China has
around 176 million public and private surveillance cameras, including on every block in Beijing,
with more being installed in rural areas to control crime rates.
 Meanwhile, in Russia, there was an increase in crime rates in 2019, reaching approximately
1.38 thousand offenses per 100 thousand population. The most committed offence was fraud and
thefts, accounting for over 50% of total offenses registered with the development of digital
banking.
 Therefore, even with a higher GDP per capita income and accompanying rise in material
SOL in Russia than that of China, it is negated by the high crime rates and removal all
forms of civil liberties.
 As such, the overall SOL in Russia is likely to be overstated by the real GDP per capita and
HDI figures. Hence one cannot conclude that an average Russian has a higher SOL
compared to a Chinese because of the lack of individual autonomy, absence of pluralistic values
and civil rights.
 However, it must be noted that such qualitative aspect of wellbeing is difficult to quantify and is
normative in nature.

Conclusion
 The higher real GDP per capita and HDI data provided in the table allows one to conclude that an
average resident in Russia enjoys a higher level of material and non-material SOL compared to
an average resident in China. However, such a conclusion might be erroneous due to absence of
certain information and data limitations.
 For more accurate comparisons to be made, additional data will be required. These include
information on the Gini coefficients that can be used as a gauge of the income disparities in the 2
countries; breakdown of the unemployment rate data, as well as qualitative indicators such as
changes in literacy rates, average working hours as well as pollution levels to better compare
changes in non-material SOL between the 2 countries.
 Alternative welfare indicators such as the Happy Planet Index should be used as it measures how
well nations are doing at achieving long, happy, sustainable lives. Developed countries such as
Russia, are often seen as the standard of success when it comes to economic growth but do not
rank highly on the Happy Planet Index.
 Notwithstanding, comparing the SOL between Russia and China is often plagued with problems
such as difficulties in compiling information, difficulties in deciding on what and how many
yardsticks to use since countries also differ in their standards of measurement. Hence, one
needs to use other composite indicators such as MEW/ISEW/GPI in comparing living
standards between Russia and China, together with the national income statistics and HDI.

Knowledge, Application, Understanding, Analysis

L3  Balanced answer with comprehensive analysis of the strengths and 15-20

limitations of the data presented in the table in comparing the levels in
both material and non-material aspects of SOL between the countries.
 Includes discussion of PPP adjusted GDP per capita and addresses at least
3 economic indicators.
 Analysis demonstrates the ability to compare the SOL between Russia and
China using the statistics provided.
L2  Attempt at balanced answer 9-14
 Some minor lapses in economic analysis of the strengths and limitations of
the statistics provided in the table in allowing comparisons of levels in both
material and non-material SOL between Russia and China.
 Answer may be one-sided i.e. only material OR only non-material SOL, OR
only strengths OR only limitations of statistics used in comparison.
L1  Lacks rigour or flaws in economic analysis. 1-8

E3  Able to provide a clear stand/judgement. 4-5

 Able to substantiate well, using economic reasoning, how the

5
 stand/judgement is arrived at - by weighing the competing arguments in the
body of analysis, and / or by referencing to appropriate criterion.
 Able to provide a well-developed insight based on a synthesis of the
arguments. Eg. Students are able to explain other alternative indicators that
are more comprehensive in nature that allows one to better compare the
SOL between the two countries. Alternatively, students are able to provide
suggestions on how the government of the respective countries can raise the
SOL of an average citizen.

E2  Supported judgment that lacks detailed analysis. 2-3

 Students are able to suggest supplementary/additional data that is required
in order for an accurate comparison to be made, e.g. Gini coefficient, literacy
rates, average working hours, pollution levels etc.

E1  A summative conclusion that is unsupported 1