Why Prices Go Up in Countries That Were Cheap

a large middle class in Mexico

Not-so-poor-anymore Mexico City

The cheapest places to travel around the world are still a bargain, don’t worry. The 5th edition of The World’s Cheapest Destinations will have more of them this time too, thanks to improving infrastructure in the Balkans and a few currency exchange declines.

This doesn’t mean prices stay constant though and the refrain of, “That place is not as cheap as it used to be” has some grounding in fact. Prices go up over time in countries that are cheap, partly because the people who live there are not as poor as they used to be.

No matter how you look at it, the world is getting richer. These gains are not evenly distributed of course, and the disparity between the ultra-rich and everyone else keeps growing, aided by politicians who love to reward their donors instead of helping their constituents.

Overall though, the average Joe is dramatically better off than his father was in most developing countries. That may not be true in the USA or UK, but it’s definitely true overall in developing places from Thailand to Hungary to Ecuador. Here’s what the World Bank said in their last report on “The Changing Wealth of Nations.”

Global wealth increased 66 percent from 1995 to 2014 (from $690 trillion to $1,143 trillion, in constant 2014 U.S. dollars at market prices), marked by a sharp rise in the share held by middle-income countries from 19 percent to 28 percent over the period, while the share of high-income OECD countries declined from 75 percent to 65 percent. This change largely reflects the phenomenal rise of Asia, which has gone from mostly low- to middle-income status (except for Nepal) in one generation.

As that aside about Nepal hints, however, it’s not a given that a country will naturally get wealthier over time. Natural disasters, commodity price declines, dumb fiscal policies, and political corruption all hurt. The biggest drag, however, is just families having too many kids. There’s a clear correlation between the countries with the highest birth rates and those that are not advancing in terms of wealth.

countries getting wealthier and therefore more expensive

That chart is kind of a lagging indicator since the data takes so long to gather and process. I’m guessing if they did it now that Mexico, Bolivia, Portugal, Spain, and Greece would be a few notches higher. Venezuela would definitely be in the red. As you can see though, there’s trouble in Sub-Saharan Africa, while Asia has mostly been on fire.

What does this mean for you? Well Thailand and Vietnam may not be as dirt cheap as they were a generation ago. Peru and Ecuador may cost you a bit more.

Our Travel Memories Get Fuzzy and Prices Go Up

One time at a Christmas party about ten years ago, an uncle of mine talked wistfully of a motorcycle trip he took in Mexico “a while back” and went on about how incredibly cheap it was to eat out, swill tequila, and follow it up with a few Mexican beer chasers for under a buck. In his mine, it was a land of plenty where he was filthy rich. He had lost track of time, like we often do, and is looking back at a bygone era. A time before NAFTA, before liquor conglomerates snatched up every tequila company with more than two employees, before the whole Mexican beer industry consolidated to just two companies with half-foreign ownership.

Mexico is still a great bargain, even more so the past few years than it was a decade ago, but those were the days when the middle class in Mexico was about a hundred million people smaller than it is now.

I’ve often overheard the following phrase applied to places where the bargains are long gone: “It was so cheap there—you’ve gotta go check it out!”

Ask any war vet grandpa about his weeks on leave and depending on how old he is he’ll tell you great stories about how he spent $5 on a whole weekend with a Bangkok hottie and eight bottles of Thai whiskey, or how he bought wine for 50 cents a gallon in Italy and you could buy four movie tickets with a Hershey’s bar. (Unfortunately, today’s troops are caught in barren lands with no booze or babes, so their “you shouldda been there” stories are gonna suck badly decades from now.)

Rising Affluence Is a Good Thing…Usually

So where am I going with all this? Well over the past decade in a half, there’s been huge growth around the world in internet penetration, mobile phone penetration, and access to food and clean water. All these things can noticeably improve a person’s ability to grown and learn, especially kids. More knowledge, more education, more opportunity, and a higher standard of living. Too bad for you, shoestring backpacker, as it means you’re no longer the only one with two pence to scratch together—or an ATM card.

In some cases, the number of people earning more than $10,000 a year has nearly doubled in just a decade. That’s huge. Plus, although when we think of countries that have minimized income equality we think of Scandinavian ones, countries with the lowest disparity include some developing nations too, like the Czech Republic, Slovakia, and Hungary.

While growth in the percentage who have hit middle class is a beautiful thing, it’s also worth celebrating when families just plain have their basic needs covered. In 2004—a decade after I started backpacking around the world—some 40% of the families in the world were scraping by on $4 or less a day. By the end of this decade the World Bank estimates that will drop below 20% and keep declining. Sure, it’s still unacceptably high, but the trend is going in the right direction.

rising wealth around the world

At the same time, the Brookings Institute has estimated that we’ll pass 4 billion people worldwide being considered middle class in 2020. That’s defined as earning between $11 and $110+ per day. (To compensate for what $11 is worth in Nepal compared to what $11 is worth in Dubai.) All that overtourism you keep hearing about? In large part it’s caused by the simple fact that there are more people traveling—especially the ones who couldn’t afford it before and now can.

The real lesson here, however, is that the world is getting richer. Not in an equitable way by any means, but there aren’t as many people in poverty, which is worth feeling good about. That means you may pay a bit more in rural India or Bolivia for your thali or menu del dia, but that’s a net positive for mankind. Prices go up in cheap destinations, but sometimes we should be happy that they do. It can mean that the locals are better off. Maybe they’ll even get to travel like you.

But next time someone tells you about how you can eat a five-course dinner in Eastern Europe served by guys in tuxedos while drinking two bottles of vodka and having a 20-piece orchestra play in the background for $8 apiece, you might want to ready a follow-up question. “When did you say you were there again…?”

Comments
  1. Casse

    IN Suvlaki and Row-mania only 10 people earned more than 10 K.
    Now 80 people have risen above this threshold.
    So still almost nobody makes more than 10K.
    800 percent rise does not impress me if I do not know the starting ground.
    When very low like one in a million, 800 percent rise is a rise from nothing to still nothing.

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