A Note on Estimating Income Inequality across countries using PPP Exchange Rates Jayati Ghosh

The use of exchange rates based on Purchasing Power Parities to compare income across countries and over time has become standard practise. But there are reasons to believe this could lead to excessively inflated incomes for poor countries and in some cases also inflate the extent of real changes over time. Estimates of gross domestic product growth in Chinese and Indian economies in recent years provide examples of this. ELRR_PPP_Exchange_Rates (Download the full text in PDF format) (This article was originally posted in the Economic and Labour Relations Review on January 30, 2018.)

Do Purchasing Power Parity exchange rates mislead on incomes? The case of China C.P. Chandrasekhar and Jayati Ghosh

Ever since Robert Summers and Alan Heston produced what become known as the “Penn World Tables” comparing prices and thereby the purchasing power of currencies across countries, the urge to use some deflator of market exchange rates to compare incomes across countries has been strong. The economic theory behind this is that exchange rate comparisons of less-developed economies consistently undervalue the non-traded goods sector, especially labour-intensive and relatively cheap services, and therefore underestimate real incomes in these developing economies. In some cases, this can be quite significant. In larger emerging markets like China and India, the conversion factors have been…

The Search for India’s Bulky Middle C.P. Chandrasekhar

For reasons not always well established, the middle class in modern societies is viewed with favourable eyes. Defined in terms that are often subjective, that group is seen as directly or indirectly underlying social stability and driving growth. Based on results from its Global Attitudes database, the Pew Research Centre, for example, found that members of the middle class defined as belonging to a specific income range were more satisfied with their social condition and positive about their future than the poor. That makes them a force for stability, when compared to the poor or near-poor who are likely to…

The World Bank’s New Poverty Estimates – Digging Deeper into a Hole Sanjay G. Reddy

The World Bank has today[1] released what it refers to as ‘updated’ global poverty estimates. These new numbers are based on a new worldwide price survey and a new benchmark international poverty line of $1.25 2005 PPP which replaces earlier benchmark poverty lines (of $1.08 1993 PPP and $1.00 1985 PPP, both widely referred to as “$1 per day”) corresponding to earlier base years. The revised figures purport to estimate world poverty figures for a range of years since 1981, and thus crucially affect our understanding of the world over the last quarter century of globalization. Many aspects of the global…