Peter Robertson, 09 October 2021

US military spending is said to be greater than the next 11 countries combined. However, the conventional use of market exchange rates to compare across countries dramatically overstates US spending relative to other countries. This column introduces a military purchasing power parity exchange rate for 59 countries based on the relative unit cost ratio across counties. This ‘military PPP’ shows that the US military budget in 2019 was smaller than that of the next three largest military spenders – China, India, and Russia – combined.

Jean-Charles Bricongne, Alessandro Turrini, 21 August 2019

The increased post-Global Crisis monitoring of house prices still lacks an effective measure for cross-country comparisons. This column outlines the creation of an integrated database covering advanced and emerging economies on the price per square metre of housing. The model shows that price-to-income ratios vary substantially at the extremes, but that the majority economies converge around the median level. Country rankings based on housing prices in euros versus PPP also vary significantly.

Maxim Pinkovskiy, Xavier Sala-i-Martin, 18 May 2018

Purchasing power parities have been one of the successes of economic measurement. This column asks whether these adjustments are a better measure of the underlying economy than market exchange rates, whether our successive estimates of PPP are improving, and whether we should discard past PPPs when new data become available. Using a regression of night-time lights on PPP-adjusted GDP data, it argues that the answers are yes, yes, and (for now) yes. In fact, current estimates of prices now may be better estimates of past prices than estimates of those past prices made at the time.

Maxim Pinkovskiy, Xavier Sala-i-Martin, 26 June 2016

When it comes to measuring GDP, researchers tend to use the latest vintage of the Penn World Tables. However, competing series like the World Development Indicators (WDI) and changing methodologies between vintages mean this is not necessarily the best approach. This column assesses the relative performance of different GDP estimators using night-time lights as an unbiased predictor of the growth rates of unobserved true income. Newer versions of the Penn Tables are not necessarily improvements on their direct predecessors.  Newer versions of the WDI index, especially the 2011 vintage, appear generally better at measuring cross-country income differences.

Angus Deaton, Bettina Aten, 16 July 2014

When the international comparison project published its latest estimates of purchasing power parity exchange rates in April there was some consternation. Poor countries became richer overnight, world GDP increased, and global income inequality was revised downwards. Alas, no one stopped being poor. This column digs into the numbers to see if we’ve been consistently underestimating the relative size of poorer economies and overestimating global poverty and inequality.

Clara Capelli, Gianni Vaggi, 06 March 2014

The GNI is often regarded as the best indicator of a country’s living standards, but it does not record unilateral transfers – most importantly remittances – which are amongst the largest types of income inflows to developing countries. For many developing countries GNDI is significantly larger than GNI, from 3% for India to 75% for Liberia. This column argues that GNDI is preferable, since GNI masks heterogeneity in purchasing power.


CEPR Policy Research