Newspaper article The Christian Science Monitor

Finding Parity in Big Macs, Haircuts

Newspaper article The Christian Science Monitor

Finding Parity in Big Macs, Haircuts

Article excerpt

WHEN Jitendra Borpujari visited his native India a few weeks ago, he got a haircut for 57 rupees. At the current foreign-exchange rate, that amounts to about $1.80. In Washington, where Mr. Borpujari works as an economist at the World Bank, a haircut costs him about $15.

The price gap hints at why the World Bank, in the 27th edition of its annual Atlas released today, has, for the first time, included figures on "purchasing power parity" in the section dealing with the average per-capita gross national product of residents of 209 countries. It is an attempt to make a more real comparison of the living standards of nations.

(GNP is the output of goods and services by a nation, a number that closely parallels national income.)

For example, if one took the lump sum of the average Indian's annual per-capita GNP in rupees and went to a bank to exchange it for United States dollars that person would have received $290 in 1993 - just enough to buy 132 "Big Macs" in Boston.

Many of India's 900 million people live on a slim diet but not that meagre. Their rupees buy more food than the foreign-exchange-rate figure indicates. To remedy this statistical problem, the Atlas gives a purchasing-power parity (PPP) annual income of $1,250 for the average Indian. That number better represents what the average income can buy in India, Borpujari says. The lower the prices in a country, the further an individual's income will go. The average Indian remains poor, but not so poor as the $290 figure would imply.

Similarly, China's per-capita GNP, based on a foreign-exchange-market-rate conversion to dollars, translated to $490 in 1993. On a PPP basis, it was $2,120.

By comparision, the per-capita GNP in the US last year was $24,750. Americans had more purchasing power for their dollars in their country than people in any other except Luxembourg, which had a PPP per-capita GNP of $29,510.

Using the traditional Atlas calculation, the US was seventh worldwide in GNP per capita. Based on a three-year average of exchange rates, Switzerland was the world's richest nation with a GNP per capita of $36,410. But in PPP terms, it was $23,620. …

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