Purchasing Power Parity (PPP) Measure

A Purchasing Power Parity (PPP) Measure is a macro-economic measure that estimates the relative purchasing power of different currencies by comparing the costs of a common set of goods and services across countries.

• Context:
  • It can be used to analyze and compare factors such as Gross Domestic Product (GDP), Poverty Levels, and Living Conditions.
  • It can enable comparison of living standards and economic activities across countries than market exchange rates.
  • It can be influenced by Inflation, Trade Barriers, and Government Policies.
  • It can be calculated using the International Comparison Program (ICP) or other methods of price and quantity data collection.
  • ...
• Example(s):
  • PPP GDP, which measures the GDP of different countries using PPP conversion factors.
  • USD PPP, which calculates the purchasing power of the US dollar in different countries.
  • A Big Mac Index, which compares the price of a Big Mac burger across countries to estimate PPP and currency valuations.
  • Human Development Index (HDI), which takes into account PPP-adjusted income measures, life expectancy, and education levels to evaluate human well-being.
  • ...
• Counter-Example(s):
  • A US$-based Measure, which relies on market exchange rates instead of PPP.
• See: Economic Measure, Value (Economics), Currency, US Dollar, Euro, Exchange Rate, Purchasing Power, Real Exchange Rate, Real GDP.

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References

• http://wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29

2023

• Web-search summary
  • Purchasing Power Parity (PPP) measure is a method employed in the estimation of economic activities and evaluation of living standards across multiple countries. This economic concept includes the comparison of the costs of a common set of goods and services across different countries as a means to gauge the buying power of various currencies. PPP conversion factors, or conversion rates, are applied to adjust economic data to facilitate significant inter-country comparisons. The PPP measure, despite its constraints, is extensively utilized by global organizations, policymakers, and researchers for analyzing and comparing Gross Domestic Product, poverty levels, and living conditions across countries. This method is often deemed as a more reliable and consistent tool for comparison than market exchange rates.

2020

• (Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/Purchasing_power_parity Retrieved:2020-4-14.
  • Purchasing power parity (PPP) is a term that measures prices in different areas using a specific good/goods to contrast the absolute purchasing power between currencies. In many cases, PPP produces an inflation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of poverty, tariffs and other frictions. PPP exchange rates are widely used when comparing the GDP of different countries.

2020

• (Pascal & Eng, 2020) ⇒ Jean Bassino‐Pascal, and Pierre van Der Eng. (2020). “Asia's ‘little Divergence’in the Twentieth Century: Evidence from PPP‐based Direct Estimates of GDP Per Capita, 1913–69.” The Economic History Review 73, no. 1
  • ABSTRACT: 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.
  • QUOTE: 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.

2013

• http://investopedia.com/terms/p/ppp.asp
  • An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power. …

    … In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. For example, a chocolate bar that sells for C$1.50 in a Canadian city should cost US$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both chocolate bars cost US$1.00.)

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