GDP per capita (PPP)
1. What does this benchmark show?
The benchmark shows GDP per capita measured in purchasing power parities. The purchasing
power parity is the rate at which currencies need to be converted to ensure that a given amount
of the base country’s currency will be able to purchase the same volume of goods and services in
other countries as in the base country. The purchasing power parity is measured in US dollars
and the benchmark is therefore a measure of the size of a “typical” basket of goods across countries in USD.
2. Why is this benchmark of relevance to a country’s international competitiveness?
GDP per capita (PPP) is a measure of a country’s wealth: is the average person richer in country
i or in country j? The PPP adjusted GDP per capita is the size of the basket of goods that an average person in a country can buy. In simplified terms it indicates how many burgers for instance British people can buy on average measured by what the burger costs in the United
States. GDP per capita (PPP) is a measure that says something about the standard of living in a
country that is affected by international competition.
3. Source and methodology
The data is extracted from IMF’s World Economic Outlook, September 2011.
There are two different ways of deriving weights used to compare the relative size of the economy between two countries. One is to use market exchange rates and the other is to use PPP.
The market exchange rate approach is relatively easier. We simply use the exchange rates to
make GDP comparable. The PPP exchange rates convert the currency of one country into that
of another in order to buy the same amount of goods and services. The advantage of PPP exchange rates, which are not incorporated in the market exchange rates, is that those rates correct for goods and services which are not traded. A standard example of this is that a haircut in
New York is more expensive than in Delhi. Use of market exchange rates does not take this into
account, and is therefore likely to underestimate the purchasing power of citizens in Delhi. It is
more difficult to collect data for the PPP approach, but the method gives a better comparison of
purchasing power, especially for emerging economies where goods and services tend to be
cheaper.
Both the IMF and OECD produce comparisons of GDP per capita at PPP. IMF presents the
most up-to-date data and is therefore used in this benchmark.
Source:
World Economic Outlook