News / Economy

Analysts Mixed on Emerging Economies Metric

FILE - Coins, banknotes of Chinese yuan paired with a U.S. dollar during photo illustration, Fuyang, Anhui province, November 2006.
FILE - Coins, banknotes of Chinese yuan paired with a U.S. dollar during photo illustration, Fuyang, Anhui province, November 2006.
— The summary findings of a World Bank study show the economies of India and China have grown more than previously thought, leading some analysts to predict that China could surpass the United States as the world's biggest economy by the end of the year — sooner than many experts had predicted.

Conducted every six years by the World Bank’s International Comparison Program (ICP) under authority of the United Nations Statistical Commission, the results show that, based on 2011 prices, the purchasing power of China’s yuan was significantly stronger than indicated by standard exchange rates.

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 Strategic Management at Britain's Warwick Business School, GDP measurements have inherent problems.

"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 Greg McBride says although PPP eliminates some statistical distortion, it produces results more akin to estimates than precise measurements.

"There is a huge margin of error there that I think can really throw the validity of the whole thing into question," said McBride.

For University of New Haven's Dr. Robert Rainish, PPP is not more or less accurate than GDP but only a different lens for viewing economic activity.

"You get a different picture," he said.

Regardless of methodology, various reports indicate China and India have been growing faster than developed economies such as the United States for some time, and the recently released ICP data also show India overtaking Japan as the world's third-largest economy.

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 July 2014.

You May Like

China Investigates Former Powerful Security Chief

Former security chief and member of Politburo Standing Committee, Zhou Yongkang, under investigation for suspected 'serious disciplinary violation' More

India, US Look to Reset Ties During Kerry Visit

This week's talks will be first high level interaction between two countries since Prime Minister Narendra Modi took charge More

Video Young African Leadership Program Renamed to Honor Mandela

YALI program, launched by President Obama in 2010, aims to build skills in business, entrepreneurship, public management and civic leadership More

This forum has been closed.
Comment Sorting
Comments
     
by: Jacob from: India
May 02, 2014 1:07 AM
Wouldn't it be more sensible to say how many cars per person, how many televisions, how much living space per family, how many hospital rooms per person, etc.? These are the real things that indicate the "wealth" of an economy. Talking about GDP and PPP both are much less accurate than what I have just mentioned and actually create more confusion than clarity.

In Response

by: Jonathan huang from: Canada
May 03, 2014 7:27 PM
You should put the number of toilets each family has in your list.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Vietnamese Staging Chinese Product Boycott After Oil Rig Spati
X
Reasey Poch
July 28, 2014 7:18 PM
China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video ESA Spacecraft to Land on a Comet

After a long flight through deep space, a European Space Agency probe is finally approaching its target -- a comet millions of kilometers away from earth. Scientists say the mission may lead to some startling discoveries about the origins of the water on earth. VOA’s George Putic has more.
Video

Video Young Africans Arrive in US for Leadership Program

President Barack Obama's Young African Leadership Initiative has brought hundreds of young Africans to the United States for a six-week program aimed at building their knowledge and skills in fields such as public administration and business. Out of the 50,000 young Africans who applied for the program, just one percent was accepted. VOA's Laurel Bowman caught up with some of those who made the cut and has this report.
Video

Video In Honduras, Amnesty Rumors Fuel US Migration Surges

False rumors in Central America are fueling the current surge of undocumented young people being apprehended at the U.S. border. The inaccurate claims suggest the U.S. will give amnesty to young migrants from the region. As VOA's Brian Padden reports from Honduras, these rumors trace back to President Obama's 2012 executive order to halt deportations for some young undocumented immigrants already living in the United States.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.