| Abstract: |
Purchasing power parities (PPPs), this article confirms, arethe correct converters for translating GDP and its componentsfrom own-currencies to dollars (the usual numeraire); the alternativemeasure, exchange rates, obscures the relationship between thequantity aggregates of different countries. Drawing on the reportsof the United Nations International Comparison Project (ICP),the article contends that exchange rates systematically understatethe purchasing power of the currencies of low-income countriesand thus exaggerate the dispersion of national per capita incomes.Where full-scale (benchmark) PPP estimates are not available,estimates based on shortcut methods better approximate whatthe benchmark estimates would be than do the exchange rate conversions.The ICP results also illuminate price and exchange rate relationshipsamong countries by providing a measure of the difference inthe levels of prices in different countries. ICP price comparisonsfor components of GDP make possible the analysis of comparativeprice and quantity structures of different countries and providethe raw materials for many types of analytical studies. |
