The international comparison program and purchasing power parities for construction

It is not uncommon to hear or read statements that suggest that people in some countries are living on just a couple dollars a day. “How can they survive?” we ask ourselves. The answer is that price levels are different between countries, and that is very much the case between wealthy industrialized nations and poorer developing countries. If one earns five local dollars a day and it costs only two to live, then survival at least is possible. The inconsistency lies in the use of money market exchange rates to convert amounts of money to the same currency and thus compare incomes and the price of goods in one currency with those in another. Comparing national economies via measures such as gross domestic product (GDP) using exchange rates to bring amounts expressed in various local currencies to a common base currency produces a view of relative wealth that can be very much distorted by price-level differences between countries.