Description: Preferences, Purchasing Power Parity, and Inequality : Analytical Framework, Propositions, and Empirical Evidence

Preferences, Purchasing Power Parity, and Inequality : Analytical Framework, Propositions, and Empirical Evidence

This paper makes analytical, methodological and empirical contributions to the literature on purchasing power parity. Purchasing power parities are required in a host of cross-country welfare comparisons, such as poverty rates and gross domestic pr...

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Bibliographic Details
Main Authors:	Majumder, Amita, Ray, Ranjan, Santra, Sattwik
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	LIVING STANDARDS TARIFFS PROFIT MAXIMIZATION CONSUMPTION EXPENDITURES FINANCIAL SERVICES PARTICULAR COUNTRY EQUIPMENT CHECKS ACCOUNTING PRODUCTION PRICE LEVELS INDEX NUMBERS INCOME INTEREST REAL EXCHANGE RATES PERFECT COMPETITION CREDIT AVAILABILITY CONSUMER PRICE INDICES LIVING STANDARD CONSUMER EXPENDITURE INTEREST RATE REAL GDP EXCHANGE INCOME GROUP GDP PER CAPITA DOMESTIC MARKET DEVELOPING COUNTRIES POLITICAL ECONOMY ENGEL CURVE INCOME’ GROUP WORLD DEVELOPMENT INDICATORS WELFARE EQUILIBRIUM VARIABLES PRODUCTION STRUCTURES PRICE EXCHANGE MARKET REAL INCOME BENCHMARKS RETURNS TO SCALE POWER PARITIES FOREIGN EXCHANGE MARKETS WEALTH INFLATION INTERNATIONAL BANK DEVELOPING COUNTRY GLOBAL ECONOMIC LANDSCAPE BUDGET CONVERSION FOREIGN MARKETS AMOUNT OF CAPITAL INFLUENCE PER CAPITA INCOME CURRENCY DEVELOPMENT ECONOMICS FOREIGN EXCHANGES FOOD PRICE INCOME INEQUALITY CONVERSIONS CONSTANT RETURNS TO SCALE EXCHANGE RATES WORLD ECONOMIES PRODUCTIVITY FOREIGN FIRMS UTILITY THEORY MARKETS INFLATION RATE INCOME LEVELS CONSUMER PREFERENCES UTILITY GROSS DOMESTIC PRODUCT CONSUMER DEMAND ECONOMIC RESEARCH POWER PARITY EXPENDITURE TRANSACTION CONSUMPTION GOOD VOLATILITY MARKET PRICES FUTURE VALUE BENCHMARKING CAPITAL MOVEMENTS RETURNS CREDIT WORLD ECONOMY PURCHASING POWER DEMAND EXCHANGE MARKETS EXCHANGES UTILITY FUNCTION COUNTRY DUMMIES AGGREGATE DEMAND MARGINAL COSTS PRICE CHANGES ECONOMY EXPENDITURES INCOMES PROPERTIES EQUATIONS MEASUREMENT SHARES TRANSACTION COSTS DEFAULT MARKET BENCHMARK FOREIGN EXCHANGE LOCAL CURRENCY ENDOGENOUS VARIABLES ENFORCEMENT FUNCTIONAL FORMS CURRENCIES TRADE LOW-INCOME ECONOMIES GDP GOODS THEORY BILATERAL TRADE SHARE DEVELOPING ECONOMY COMPARATIVE ADVANTAGE POVERTY GINI COEFFICIENT PROFIT CHECK COMMUNICATION ENGEL CURVES COMMODITIES EXCHANGE RATE PRICE INDEXES DEMOGRAPHIC GDP DEFLATOR LOCAL CURRENCIES COMMODITY PRICES COMMODITY INTERNATIONAL MARKETS PRICES GUARANTEE DEVELOPMENT POLICY INCOME GROUPS COMPETITION
Online Access:	http://documents.worldbank.org/curated/en/2015/08/24921639/preferences-purchasing-power-parity-inequality-analytical-framework-propositions-empirical-evidence http://hdl.handle.net/10986/22650

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Summary:	This paper makes analytical, methodological and empirical contributions to the literature on purchasing power parity. Purchasing power parities are required in a host of cross-country welfare comparisons, such as poverty rates and gross domestic product. The subject has recently generated much interest in the wake of the release of the final results of the 2011 International Comparison Program. This paper introduces a preference-based analytical framework that departs from the conventional Balassa-Samuelson framework in deriving empirically verifiable propositions on the link between purchasing power parity and exchange rates, and between purchasing power parity and inequality. The paper also provides an alternative methodology for calculating purchasing power parities that are benchmarked against the 2011 International Comparison Program purchasing power parities. As this study shows, the alternative methodology is capable of easy implementation on readily available data sets. The benchmarking exercise suggests that the 2011 International Comparison Program generally understates purchasing power parity and overstates gross domestic product, and that the purchasing power parities vary across expenditure percentiles. The study reports regional variation in the direction of the difference between the two purchasing power parities. The empirical evidence is supportive of the positive association between inequality and purchasing power parity derived in the paper.

Preferences, Purchasing Power Parity, and Inequality : Analytical Framework, Propositions, and Empirical Evidence

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