Purchasing Power Parity (PPP)
Definition
An economic theory and conversion factor that adjusts GDP and income comparisons between countries to account for differences in the cost of goods and services. A dollar buys more in India than in Switzerland; PPP adjustments account for this.
Why It Matters
PPP-adjusted figures give a more accurate picture of living standards than raw dollar comparisons. Without PPP, countries with low costs of living appear poorer than they actually are in terms of what residents can afford.
How It's Measured
The World Bank's International Comparison Program collects prices for hundreds of goods and services across countries to calculate PPP conversion factors.
Related Terms
Frequently Asked Questions
An economic theory and conversion factor that adjusts GDP and income comparisons between countries to account for differences in the cost of goods and services. A dollar buys more in India than in Switzerland; PPP adjustments account for this.
PPP-adjusted figures give a more accurate picture of living standards than raw dollar comparisons. Without PPP, countries with low costs of living appear poorer than they actually are in terms of what residents can afford.
The World Bank's International Comparison Program collects prices for hundreds of goods and services across countries to calculate PPP conversion factors.