top button
Flag Notify
    Connect to us
      Site Registration

Site Registration

What is difference between nominal GDP and PPP GDP? Why is India ranked higher in PPP GDP calculation?

+1 vote
635 views
What is difference between nominal GDP and PPP GDP? Why is India ranked higher in PPP GDP calculation?
posted Dec 8, 2014 by Amit Kumar Pandey

Share this question
Facebook Share Button Twitter Share Button LinkedIn Share Button

1 Answer

0 votes

The two most common ways to measure GDP per capita are nominal and purchasing power parity (abbreviated PPP). Nominal is an attempt at an absolute measure, a sort of immovable standard that remains the same from country to country. In contrast, PPP GDP is an attempt at a relative measure, taking factors of each country into consideration in order to put a number on a person’s standard of living within that country.

A rule of thumb for understanding GDP’s PPP and nominal is that PPP is how much of a local good (like real estate, labor, or locally grown produce) a person can buy in their country, and nominal is roughly how much of an internationally traded good (diamonds, DVD players, Snickers bars) a person can buy in their country.

Thus, developing countries tend to have a higher (better) PPP than nominal, while developed countries have higher nominal than PPP. You can get dinner for $10 or a DVD player for $100 in the US, or you can get dinner for $2 or a DVD player for $100 in India. If you compare a Indian making $20 a day to an American making $100 a day, then Indian and American are at same level in dinners (1/10 of income), but is poorer in DVD players than the American.

Now cutting the long story sort we make the basket of the goods of a country and bring them to the international stand by adjusting for the comparable cost to calculate the GDP side.

India ranked higher should be automatically clear with above description.

Note: Nominal and PPP are identical in the US, because USD is used as the benchmark.

answer Dec 9, 2014 by Salil Agrawal
...