Finding Parity in Big Macs, Haircuts
WHEN Jitendra Borpujari visited his native India a few weeks ago, he got a haircut for 57 rupees. At the current foreign-exchange rate, that amounts to about $1.80. In Washington, where Mr. Borpujari works as an economist at the World Bank, a haircut costs him about $15.
The price gap hints at why the World Bank, in the 27th edition of its annual Atlas released today, has, for the first time, included figures on ``purchasing power parity'' in the section dealing with the average per-capita gross national product of residents of 209 countries. It is an attempt to make a more real comparison of the living standards of nations.
(GNP is the output of goods and services by a nation, a number that closely parallels national income.)
For example, if one took the lump sum of the average Indian's annual per-capita GNP in rupees and went to a bank to exchange it for United States dollars that person would have received $290 in 1993 - just enough to buy 132 ``Big Macs'' in Boston.
Many of India's 900 million people live on a slim diet but not that meagre. Their rupees buy more food than the foreign-exchange-rate figure indicates. To remedy this statistical problem, the Atlas gives a purchasing-power parity (PPP) annual income of $1,250 for the average Indian. That number better represents what the average income can buy in India, Borpujari says. The lower the prices in a country, the further an individual's income will go. The average Indian remains poor, but not so poor as the $290 figure would imply.
Similarly, China's per-capita GNP, based on a foreign-exchange-market-rate conversion to dollars, translated to $490 in 1993. On a PPP basis, it was $2,120.
By comparision, the per-capita GNP in the US last year was $24,750. Americans had more purchasing power for their dollars in their country than people in any other except Luxembourg, which had a PPP per-capita GNP of $29,510.
Using the traditional Atlas calculation, the US was seventh worldwide in GNP per capita. Based on a three-year average of exchange rates, Switzerland was the world's richest nation with a GNP per capita of $36,410. But in PPP terms, it was $23,620.
Per-capita PPP numbers for other rich countries include: Canada, $20,410; France, $19,440; Germany, $20,980; Italy, $18,070; the Netherlands, $18,050; Sweden, $17,560; and Britain, $17,750. The number for Russia was $5,240.
Mozambique and Ethiopia were the poorest countries in the world, each with a PPP per-capita GNP of $380.
The Atlas shows that developing countries are gaining ground as a force in the world economy. ``More and more have moved to the mainstream of international trade during the 1990s,'' the slim publication notes. ``The share in global GNP of the low and middle-income economies exceeded 20 percent in 1993. That share doubles if purchasing-power parities of national currencies are taken into account.''
Because world population grew at about the same rate as total income, post-inflation global income per person stagnated in 1993. That average was depressed by a more than 10 percent drop in per-capita income for the former Soviet Union economies. Poor and middle-income nations outside this group enjoyed a 2 percent gain in real income per capita, helped along by especially vigorous economies in Asia and Latin America.
In the wealthy countries, real income per capita rose by less than 1 percent. Japan and much of Europe were in recession.
``Although not without failures and false starts, development during the second half of the 20th century has been one of the largely unsung success stories of human history,'' comments Lewis Preston, World Bank president, in a forward to the Atlas, a compilation of social, economic, and environmental data.
``Life expectancy in the developing countries has improved more than during the entire previous span of human history,'' he notes. ``The child mortality rate has been reduced by two-thirds.... The average income of each person in the developing world has doubled.'' Yet 1 billion people remain in desperate poverty.
Borpujari cautions that PPP data in the Atlas, drawn to a large degree from United Nations statistics, are often rough and sometimes updated from old surveys or devised from other statistics.