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

US Imposes Sanctions on Alleged Honduran Drug Gang

Treasury department alleges Los Valles group is responsible for smuggling tens of thousands of kilograms of cocaine into US each month More

At 91, Marvel Creator Stan Lee Continues to Expand his Universe

Company's chief emeritus hopes to interest new generation of children in superheroes of all shapes and sizes by publishing content across multiple media platforms More

Photogallery New Drug Protects Against Virus in Ebola Family

Study by researchers at University of Texas Medical Branch, Tekmira Pharmaceuticals is first looking at drug's effectiveness after onset of symptoms 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.
African Media Tries to Educate Public About Ebolai
X
George Putic
August 20, 2014 8:57 PM
While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls For Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid

World Currencies

EUR
USD
0.7492
JPY
USD
102.27
GBP
USD
0.5960
CAD
USD
1.0950
INR
USD
61.300

Rates may not be current.