THE THREE FACES OF THE INTERNATIONAL COMPARISON PROJECT

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Abstract
Purchasing power parities (PPPs), this article confirms, are the correct converters for translating GDP and its components from own-currencies to dollars (the usual numeraire); the alternative measure, exchange rates, obscures the relationship between the quantity aggregates of different countries. Drawing on the reports of the United Nations International Comparison Project (ICP), the article contends that exchange rates systematically understate the purchasing power of the currencies of low-income countries and thus exaggerate the dispersion of national per capita incomes. Where full-scale (benchmark) PPP estimates are not available, estimates based on shortcut methods better approximate what the benchmark estimates would be than do the exchange rate conversions. The ICP results also illuminate price and exchange rate relationships among countries by providing a measure of the difference in the levels of prices in different countries. ICP price comparisons for components of GDP make possible the analysis of comparative price and quantity structures of different countries and provide the raw materials for many types of analytical studies.

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