Why Prices Go Up in Formerly Cheap Countries

The cheapest places to travel around the world are still a bargain, don’t worry, and there are lots of cheap countries to choose from. The 5th edition of The World’s Cheapest Destinations actually has more of them in the current 5th edition compared to the 4th, 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. Eventually, some of them become, “the formerly cheap country of ____.”

No matter how you look at it, the world is getting richer overall. 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 and golf buddies instead of helping their constituents. Plus the very poorest 8% of the world’s population is not seeing any growth at all. 

Overall though, the average Joe or Jose is dramatically better off than his father was in most developed and mid-developing countries. That may not be true in the USA or UK, especially with high housing prices and 8% inflation we’re currently living through. 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.”

Although national total wealth increased everywhere, per capita total wealth did not. Twenty-six countries saw a decline or stagnation in per capita wealth as population growth outpaced net growth in asset value, especially in Sub-Saharan Africa among countries such as the Democratic
Republic of Congo, Niger, and Zimbabwe. These twenty-six countries could be found in all income groups. As per capita wealth declines, the ability of countries to maintain per capita income will decline. If the trend continues, future generations in these countries will be worse off than current generations.

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.

That chart is kind of a lagging indicator since the data takes so long to gather and process. I’m guessing Chile is red because they’re so reliant on mining and mineral extraction. As you can see though, there’s trouble in Sub-Saharan Africa and parts of Central America, while Asia has mostly been on fire except for Nepal. Venezuela says “no data” and what’s coming out of similarly dictator-run Nicaragua is probably not very reliable. 

What does this mean for you? Well Thailand, Cambodia, and Vietnam may not be as dirt cheap as they were a generation ago. Peru and Ecuador may cost you a bit more depending on exchange rates. Brazil, Colombia, and Argentina are a bargain, however.

Our Travel Memories Get Fuzzy and Prices Go Up

One time at a Christmas party ages 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. Their hotel rooms were 10 or 15 bucks. In his mind, 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!” Um, no it’s not. Times have changed. 

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. Different times. 

Rising Affluence Is a Good Thing…Usually

So where am I going with all this? Well over the past two decades, 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 grow 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 countries, especially in Europe and Asia, the number of people earning more than $10,000 a year has doubled in the last 10 or 15 years. 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, despite the pandemic hiccup.

Sure, it’s still unacceptably high, but the trend is going in the right direction.

A few years ago, the Brookings Institute estimated that we’d 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.) I doubt that panned out quite as expection since we had more than a year of shutdowns around the world. But the trend will pick right back up again.

Remember all that overtourism you used to hear about? It will return, I’m sure. 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. Just wait until the Chinese can move around again. 

Formerly Cheap Countries Can Move Up

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.

The people from formerly cheap countries are better off if their wages are going up–unless the environment is getting trashed as the World Bank is now measuring too. Just try to be mindful that the locals’ lives may be improving dramatically before complaining about a rise in prices for travelers. 

Remember the time factor though when you hear about cheap countries from some random person you met or someone who doesn’t travel much. 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…?”