Analysts Mixed on Emerging Economies Metric
Conducted every six years by the
Drawn from a different economic measurement than the widely-used Gross Domestic Product (GDP) figures, the results of the Purchasing Power Parities (PPP) method purportedly reflect differences in costs of living in different nations with greater accuracy.
According to Kamel Mellahi, Professor of
"With traditional GDP, people always said it underestimated the size of economies in developing countries, and some of the emerging economies, because the cost of living is cheaper and lower there," he said
Whereas GDP measures all goods and services produced in a nation and relies on market-based exchange rates -- the rate travelers or exporters get at a bank -- PPP-based analysis allows comparison of living standards in countries with widely varying prices.
"[It] captures how far a dollar goes in terms of buying goods and services in different countries," said Mellahi, explaining that the PPP metric is particularly good at illustrating the relative cost of goods in different nations and how much it costs to buy things needed by ordinary people.
"You take a basket of goods that we all buy, including milk, butter, sugar, [going] to the movies, prices of haircuts in different countries, and they look at the cost of that in different countries," he said.
Scholars then use that data to work out what amounts to a hypothetical exchange rate with which to compare economies.
Whereas both PPP and GDP rates can be affected by many factors, Bankrate.com Chief Financial Analyst
"There is a huge margin of error there that I think can really throw the validity of the whole thing into question," said McBride.
"You get a different picture," he said.
Regardless of methodology, various reports indicate
The ICP summary findings also show the U.S. economy expanding at a weak one-tenth of one percent in the first three months of this year.
The full results of the ICP report are slated for release in
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