Defining Purchasing Power Parity by Country
Purchasing Power Parity (PPP) by country is defined as comparing the value of a country’s purchasing power with other nations in a specific year. The value of a country’s goods and services is called the GDP or Gross Domestic Product. Its PPP is connected to the exchange rates and how the consequent value compares to goods and services produced by that country.
The PPP, in other words, takes the value of the GDP, applies the current currency exchanges, and then compares one country to another. These values are calculated by adding up the consumption of goods and services by all households in the country, the government, the net exports of the nation, and also the fixed capital formation. So, for example, the United States PPP compared to India’s, for example, is calculated by finding the exact GDP between both countries and then finding an equal dollar value in USD, or United States Denomination.
China is considered to have the highest PPP in the world, despite the fact that it is still a developing nation. That is because, although the majority of its citizens make a very low wage, the economy is larger than any other country. Although today, China may have the largest PPP in the world, it is not by much, and it frequently is just ahead or just behind the United States.
In 2017 for example, China had a PPP of $19.6 trillion USD, while the United States had a PPP of $19.5 trillion USD.
United States’ PPP
The United States is easily one of the most powerful economies in the world and is usually second to China here. In 2022, the United States had a GDP of $25.35 trillion and a PPP that handled over 16 percent of the world’s goods and services.
That was despite a significant downturn in both GDP and PPP for the United States after the COVID-19 pandemic, which resulted in a significant shut down of the economy across the world.
India’s PPP Has Far to Go
India, like China, is still a developing nation but is also the third-largest economy globally when it comes to PPP. This country has approximately 6.7 percent of the world’s GDP, compared to America’s 16 percent.
In some cases, the World Bank has sometimes ranked India above both the United States and China when it came to GDP, but when calculated as PPP, India comes in third place. Behind India, Japan, Germany, and Russia follow in that order when it comes to purchasing power parity by country.