PPP stands for purchasing power parity, and GDP (PPP) stands for gross domestic product. This article covers a list of countries ranked by their expected GDP prediction (PPP). Countries are sorted based on GDP (PPP) prediction estimates derived from financial and statistical organisations using market or official exchange rates. The information on this page is in international dollars, which is a standardized unit used by economists. If they are different jurisdiction areas or economic entities, several territories that are not usually recognized countries, such as the European Union and Hong Kong, appear on the list.
When comparing the domestic market of a country, PPP comparisons are arguably more useful than nominal GDP comparisons because PPP considers the relative cost of local goods, services, and inflation rates of the country rather than using international market exchange rates, which may distort the real differences in per capita income. It is, however, limited when comparing the quality of similar items between countries and evaluating financial flows between countries. PPP is frequently used to determine global poverty thresholds, and the United Nations uses it to calculate the human development index. In order to estimate a representative basket of all items, surveys like the International Comparison Program include both tradable and non-tradable goods.
The first table shows estimates for 2020 for each of the 194 nations and areas covered by the International Monetary Fund’s (IMF) International Financial Statistics (IFS) database (including Hong Kong and Taiwan). The figures are in millions of dollars and were estimated and released by the International Monetary Fund in April 2020. The second table contains data for 180 of the 193 current United Nations member nations, as well as Hong Kong and Macau, largely for the year 2018. (the two Chinese Special Administrative Regions). The World Bank compiled the data, which is in millions of international dollars. The third table provides a summary of the 2019 CIA World Factbook GDP (PPP) data. The data for GDP at purchasing power parity has also been rebased and projected to 2007 using the latest International Comparison Program price surveys. In cases where they exist in the sources, non-sovereign entities (the world, continents, and some dependent territories) and nations with restricted recognition (such as Kosovo, Palestine, and Taiwan) are included in the list. These economies are not ranked in the graphs, but are instead listed in order of GDP for comparison purposes. Non-sovereign entities are also highlighted in italics.
In the European Single Market, the European Union shares a common market with Iceland, Liechtenstein, Switzerland, and Norway, which ensures the free movement of commodities, capital, services, and labor (the “four freedoms”) among its member states. The EU is also a participant in international trade discussions, and thus may appear on various lists. The EU could be placed above or below the US, depending on the approach used. The World Bank, for example, projects the European Union’s GDP (PPP) to be $20.78 trillion in 2019.
What makes PPP more precise?
The precision of PPPs improves as the aggregate level rises. This means that the PPP for final household consumption or gross capital formation (and consequently the PLI, real expenditure, and volume index per capita) at the GDP level will be more trustworthy or precise than the PPP for final household consumption or gross capital formation. Similarly, the PPP for “food and non-alcoholic beverages” or “clothing and footwear,” both of which are sub-aggregates of final household consumption, will be more trustworthy.
Data for the PPP compilation process originates from a variety of places, including particular PPP pricing surveys and national accounts. This makes calculating any meaningful, numerical assessment of error margins for PPPs difficult. PPPs, PLIs, and other PPP-based metrics, on the other hand, are widely acknowledged as not being meant to establish a rigid ranking of countries. The level of uncertainty associated with fundamental pricing and spending statistics, as well as the methodologies used to compile PPPs, can result in inaccuracies that affect country rankings, especially when countries are concentrated around a limited range of outcomes. PPPs and PPP-based indicators thus provide a measure of a country’s relative magnitude in comparison to other countries in the comparison. As previously stated, this is more true at a low level of aggregation than, for example, GDP or GDP per capita.
Sampling error
The range of commodities and services, which are not equally representative of all nations included in international comparisons, is the most prominent source of statistical margins of sampling mistakes in price surveys. The proportion of consumption expenditure varies per country, which can lead to inconsistencies in representativeness and data comparability.
Non-sampling error
Measurement errors can arise in consumer goods pricing surveys due to non-compliance with the tight specification of the products in the product sample, such as packaging sizes or quality standards. While the validation procedure seeks to eliminate these inaccuracies by comparing and assessing the price material provided by each country, some of these faults, particularly those linked to quality, might be difficult to spot. Similar issues can arise in other polls, such as the annual survey on public sector employee compensation. The problem here is caused by the disparity in data sources among countries.
While non-response from one statistical unit can usually be readily overcome by changing that unit, and usually has very little impact at the level of the published categories anyhow, a unique challenge arises when no prices for a certain commodity are available in one or more nations. In these circumstances, a price relative is calculated based on the prices of similar products. If a country does not disclose prices for any sample product under a certain basic heading, the gaps are usually replaced with the PPP of a “similar” or a hierarchical, basic heading.
Quality management
Statistics Denmark follows the recommendations in the Code of Practice for European Statistics (CoP) on quality organization and management, as well as the implementation requirements in the European Statistical System’s Quality Assurance Framework (QAF). To maintain continuous management of products and processes, a Quality Working Group and a central quality assurance role have been developed.
Quality assurance
Statistics Denmark adheres to the standards outlined in the Code of Practice for European Statistics (CoP) and implements them using the European Statistical System’s Quality Assurance Framework (QAF). This entails constant decentralized and central control of products and processes based on international standards-compliant documentation. The Working Group on Quality receives reports from the central quality assurance department. Reports provide proposals for improvement, which are evaluated, decided upon, and then implemented.
Data revision – policy
Statistics Denmark revises published numbers in accordance with Statistics Denmark’s Revision Policy. For some statistics, the Revision Policy’s general procedures and concepts are reinforced by a specialized revision practice.
Data revision practice
The changes between provisional and final data are small. PPPs are no longer amended after the final PPPs for a certain reference year have been calculated. The complete time series of PPPs is rescaled to the current national accounts aggregates twice a year, in June and December, and the database updated correspondingly, in order to preserve the best possible degree of consistency with national accounts.
Why would a company prefer PPP to GDP?
- Purchasing power parity (PPP) is a prominent macroeconomic statistic that compares the currencies of different countries using a “basket of goods” method.
- Economists can compare economic productivity and living standards between countries using purchasing power parity (PPP).
- To reflect PPP, some countries modify their gross domestic product (GDP) estimates.
What is the difference between PPP and GDP?
Macroeconomic parameters are crucial economic indicators, with GDP nominal and GDP PPP being two of the most essential. GDP nominal is the more generally used statistic, but GDP PPP can be utilized for specific decision-making. The main distinction between GDP nominal and GDP PPP is that GDP nominal is the GDP at current market values, whereas GDP PPP is the GDP converted to US dollars using purchasing power parity rates and divided by the total population.
Why is PPP incorrect?
PPP’s disadvantages Earlier polls have likewise been the subject of methodological issues. The PPP rates must be estimated in between survey dates, which can add flaws into the measurement. Furthermore, because the ICP does not cover all nations, statistics for those that are absent must be extrapolated.
What does increased GDP PPP imply?
Now put this into practice in your daily life. The orange juice represents the “basket of commodities” that was previously discussed, which indicates the cost of life in a country. As a result, even if a country’s GDP per capita (individual income) is higher, its citizens may still live in poverty if the cost of living is higher.
There are some issues with utilizing the market basket to compute PPP. It can be difficult to establish an accurate market basket because people in various countries buy different things. As a result, PPP may not always accurately reflect the true worth of money in different countries.
What is the benefit of PPP economics?
The currency rate required for $100 to buy the same amount of goods in each country is known as Purchasing Power Parity. The entire amount of goods and services that a single unit of a country’s currency can buy in another country is measured by PPPs. To make more understandable comparisons and contrasts across countries, much data is adjusted for purchasing power parity.
What does it mean to have more purchasing power?
The rise or reduction in how much customers can buy with a given amount of money is referred to as purchasing power loss/gain. When prices rise, consumers lose purchasing power, and when prices fall, they gain purchasing power. Government regulations, inflation, and natural and man-made calamities are all factors that contribute to a loss of purchasing power. Deflation and technical progress are two factors that contribute to buying power gains.
Does PPP stand up in practise?
When applied to real-world facts, the purchasing power parity (PPP) theory fails poorly. To put it another way, the PPP connection between any two countries at any one period is extremely rare. The inability of a theory to be supported by data in most scientific disciplines means the theory is rejected and should be discarded. With the PPP hypothesis, however, economists have been hesitant to do so. This is partly because the theory’s logic appears to be particularly sound. It’s partly because there are so many “frictions” in the real world, such as tariffs, nontariff barriers, transportation costs, measurement issues, and so on, that applying the theory directly to the data would be shocking. (It’s like to expecting an object sitting on the ground to obey Newton’s rules of motion.)
Furthermore, economists have devised a new approach to interpret or apply the PPP theory in order to circumvent the empirical testing issue. The key is to think of PPP as a “long-run” rather than a “short-run” theory of exchange rate setting. PPP is no longer required to hold at any moment in time under this understanding. The PPP exchange rate, on the other hand, is regarded to be a target toward which the spot exchange rate is gradually drawn.
This long-run view assumes that importers and exporters are unable to adapt fast to differences in market basket costs between countries. Rather than reacting quickly to price variations between nations by participating in arbitrage (buying low and selling high), traders react slowly to these price signals. Imperfect information (traders are unaware of price discrepancies), long-term contracts (traders must wait until current contractual arrangements expire), and/or marketing expenditures are some of the reasons for the delay (entry to new markets requires research and setup costs). Furthermore, we acknowledge that trading activity is not the sole determinant of the exchange rate. Even if traders continue to respond to pricing disparities, investors who respond to different motivations may generate persistent variations from the PPP exchange rate.
PPP no longer needs to hold at a specific time when there is a delayed response. However, the idea assumes that traders will eventually adjust to price discrepancies (buying low and selling high), causing the spot exchange rate to move closer to the PPP rate. However, when adjustment takes place, it’s probable that the PPP exchange rate will shift as well. The spot exchange rate is shifting toward a moving objective in this scenario.
How long will it take to make this adjustment? To put it another way, how long does the long run last? Economists use the term to refer to a “unspecified” extended period of time, which could span several months, years, or even decades. Furthermore, because the aim, the PPP exchange rate, is continuously changing, it’s feasible that it’ll never be met. Even if the exchange rate is continually chasing the target, the adjustment process may never allow it to catch up.
Consider Figure 6.3, “Hypothetical Long-Term Trend,” for an example of what the long-run PPP theory proposes. The graph depicts fabricated data (that is, data that has been made up) between two countries, A and B. The dotted black line depicts the cost of market baskets in the two countries over the course of a century, from 1904 to 2004. It shows a consistent growth, showing that prices in nation A have risen faster than in country B. The solid blue line depicts a comparison of the two countries’ currency rates during the same time period. The exchange rate plot would be directly on top of the market basket ratio plot if PPP held at all points in time. The fact that it does not implies that PPP was not always valid. In actuality, PPP held only when the exchange rate plot crossed the market basket ratio plot; on the diagram, this happened only twice during the century, which isn’t a great track record.
Is a greater PPP always preferable?
As a result, PPP is widely viewed as a more accurate indicator of overall happiness. The most significant disadvantage of PPP is that it is more difficult to measure than market-based pricing.
What is your take on PPP?
The computation of purchasing power parity informs you how much products would cost if all countries used the same currency. In other words, it is the rate at which one currency must be exchanged for another currency to have the same purchasing power.