Tracking GDP in PPP terms shows rapid rise of China and India
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The ICP blog series explores ideas and issues under the International Comparison Program umbrella – including innovations in price and data collection, discussions on purpose and methodology, as well the use of purchasing power parities in the growing world of development data. Authors from across the globe, whether ICP practitioners or researchers making use of ICP data, are encouraged to submit relevant blogs for consideration to [email protected].
According to the latest available purchasing power parity (PPP) data, China’s gross domestic product (GDP) in PPP terms overtook the USA’s in 2013, and now accounts for nearly 19% of the global economy. Five years earlier, in 2008, India’s GDP in PPP terms surpassed that of Japan to become the third largest economy in the world. This chart shows the size of the largest 15 economies in the world for every year between 1990 and 2018. Over that time, China’s economy grew by over a 1000%, whilst India’s economy grew by nearly 500%.
This comparison of economies across the globe is enabled by the use of PPPs, computed by the International Comparison Program (ICP), which collects price and expenditure data from nearly 200 countries. Next year we will be releasing new ICP results, including updated PPPs and measures of GDP and its aggregates. At that time, we will revisit these trends and rankings to explore when these growing economies have risen to become some of the largest players in the global economy over the last few years. We will also take a look at the standard of living within these countries and the material well-being of their citizens, through GDP per capita measured in PPP terms. Stay tuned to #icpppp…
Bravo for the graphical mobile representation very educational but I do not know the concept of Purchasing Power Parity. For lawyers like me and also the development community (PPP) refers to Public Private Partnerships. Can you explain the meaning here? Thank you
Thank you for asking, here is the definition PPP from the World Bank International Comparison Program (https://www.worldbank.org/en/programs/icp):
Purchasing Power Parities (PPPs)
PPPs measure the total amount of goods and services that a single unit of a country’s currency can buy in another country. The PPP between countries A and B measures the number of units of country A’s currency required to purchase a basket of goods or services in country A as compared to one unit of country B’s currency to purchase a similar basket of goods in country B. PPPs can thus be used to convert the cost of a basket of goods and service into a common currency while eliminating price level differences across countries. In other words, PPPs equalize the purchasing power of currencies. Due to large differences in price levels across economies, market exchange rate- converted GDP does not accurately measure the relative sizes of economies and the levels of material well-being. PPPs make it possible to compare the output of economies and the welfare of their inhabitants in ‘real’ terms, thus controlling for price level differences across countries.
I am interested
Greetings from Malaysia. As a student of US-PRC relations, I've been intrigued by the fact that in PPP terms, the PRC GDP exceeded Japan's just two years before it did so in nominal terms. China's PPP GDP exceeded the USA's in 2013, but it is still probably 25% smaller than the USA's in nominal terms. How are we to understand this temporal variation? Exchange rate differentials, or something else? Appreciate advice. Thanks.