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Prices and purchasing power parities (PPP)

OECD share in world GDP stable at around 50% in PPP terms in 2017

 

The United States and China are the two largest economies, each accounting for around 16% of world GDP

19/05/2020 - The OECD share in world GDP expressed in Purchasing Power Parities (PPPs) stabilised around 50% between 2011 and 2017 (latest benchmark year), according to new data released today by the International Comparison Program (ICP). Similarly, the share of large emerging economies (China, Brazil, India, Indonesia, the Russian Federation and South Africa) also stabilised at around 30% of world GDP.

The United States and China were the world’s largest economies in 2017, each accounting for around 16% of global GDP. The third largest economy was India, with 6.7% of world GDP.

PPPs are the relevant currency conversion rates to make international comparisons of economic activity. Unlike exchange rates, they correct for differences in price levels across countries. As price levels are higher in high-income countries and lower in low-income countries, a comparison based on exchange rates overstates the size of high-income countries and understates the size of low-income countries. For instance, the OECD area accounts for two thirds of world GDP with currency conversions based on exchange rates. Similarly, the share of the United States in world GDP (24.5%) is much higher than the share of China (15.2%) if exchange rates are used.

The 2017 PPPs released today include new information for non-OECD countries as compared to the 2017 PPPs available so far in OECD.Stat and the World Development Indicators, which were necessarily based on extrapolations1 of GDP deflators from the last PPP benchmark year.

Of particular note is that the 2017 benchmark PPP for China is 18% higher than the extrapolated PPP, implying a similar downward change in estimates of China’s GDP on a PPP basis. Estimates based on extrapolation suggested that China had overtaken the United States on a PPP basis in 2014 but the new benchmark estimates reveal a different picture, with both economies of equal size in 2017. This is a reminder that care is needed in comparing extrapolated estimates. In part to address the impact of extrapolated measures, the next ICP round, which is currently in preparation, will be conducted with 2021 as the reference year.

Shares in world GDP based on PPPs, 2017

Shares in world GDP based on PPPs, 2017

Source: 2017 International Comparison Program (ICP)

Shares in world GDP based on exchange rates, 2017

Shares in world GDP based on exchange rates, 2017

Source: 2017 International Comparison Program (ICP)

Summary of ICP 2017 results for selected countries*

Summary of ICP 2017 results for selected countries

* The OECD countries included in this Table account for a share of world GDP above 1%.

Source: 2017 International Comparison Program (ICP)

Specific PPPs can also be applied to measures of Actual Individual Consumption2 (AIC) per capita to provide insights on comparisons of material well-being of households across countries.

In the OECD area, the average3 per-capita volume of AIC was 2.75 higher than the world average in 2017. The United States had the highest AIC per capita in large economies, at over four times the world average, and close to eleven times the average in India and seven times the average in China.

Actual individual consumption per capita indices, 2017 (World = 100)

Source: 2017 International Comparison Program (ICP)

The International Comparison Program (ICP) underlying the above results is the largest worldwide statistical partnership. It involves 176 countries as well as regional agencies collecting internationally comparable prices. For all these countries, the ICP provides volume measures of Gross Domestic Product and its components, for example AIC, based on PPPs. The OECD is a partner in the ICP. Together with Eurostat, the OECD calculated 2017 benchmark PPPs for GDP and final consumption for 49 countries. These benchmark PPPs were included in the worldwide ICP comparison.

 

Useful links

International Comparison Program
Purchasing Power Parities: Frequently Asked Questions 
2017 PPPs for OECD countries 
Purchasing Power Parities – not only about Big Macs (Blog article)

 

Contacts

For further information, please contact the OECD Statistics and Data Directorate at stat.contact@oecd.org.

 

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1. See Chapter 18 of the ICP book “Measuring the Real Size of the World Economy

2. AIC consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are paid by households, governments, or non-profit organisations

3. The average of course does not reveal inequalities within countries.

 

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