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Metadata Glossary

Indicator Name2005 PPP conversion factor, GDP (LCU per international $)
Long definitionPurchasing power parity conversion factor is the number of units of a country's currency required to buy the same amounts of goods and services in the domestic market as U.S. dollar would buy in the United States. This conversion factor is for GDP. Historical estimates are provided for the 2005 benchmark year only. A separate series is available for extrapolated estimates based on the latest ICP round.
SourceWorld Bank, International Comparison Program database.
TopicEconomic Policy & Debt: Purchasing power parity
Statistical concept and methodologyPPP rates provide a standard measure allowing comparison of real levels of expenditure between countries, just as conventional price indexes allow comparison of real values over time. PPP rates are calculated by simultaneously comparing the prices of similar goods and services among a large number of countries. In the most recent round of price surveys conducted by the International Comparison Program (ICP) in 2005, 146 countries and territories participated, including China for the first time, India for the first time since 1985, and almost all African countries. The PPP conversion factors come from three sources. For 47 high- and upper middle-income countries conversion factors are provided by Eurostat and the Organisation for Economic Co-operation and Development (OECD). For the remaining 2005 ICP countries the PPP estimates are extrapolated from the 2005 ICP benchmark results, which account for relative price changes between each economy and the United States. Extrapolation for the GDP conversion factor uses the GDP implicit deflator. For countries that did not participate in the 2005 ICP round, the PPP estimates are imputed using a statistical model.
Development relevanceIn a market-based economy, household, producer, and government choices about resource allocation are influenced by relative prices, including the real exchange rate, real wages, real interest rates, and other prices in the economy. Relative prices also largely reflect these agents' choices. Thus relative prices convey vital information about the interaction of economic agents in an economy and with the rest of the world.
Limitations and exceptionsOfficial or market exchange rates are often used to convert economic statistics in local currencies to a common currency in order to make comparisons across countries. Since market rates reflect at best the relative prices of tradable goods, the volume of goods and services that a U.S. dollar buys in the United States may not correspond to what a U.S. dollar converted to another country's currency at the official exchange rate would buy in that country, particularly when nontradable goods and services account for a significant share of a country's output. An alternative exchange rate - the purchasing power parity (PPP) conversion factor - is preferred because it reflects differences in price levels for both tradable and nontradable goods and services and therefore provides a more meaningful comparison of real output.
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License TypeCC BY-4.0