GDP (Nominal) vs GDP (PPP)

GDP (Gross Domestic Product) is the total market value of all final goods and services produced in a country in a given period. Each country reports its data in its own currency. To compare the data, each country's statistics must be converted into a common currency. The two most common methods to convert GDP into a common currency are nominal and purchasing power parity (PPP).

Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region and to make international comparisons. It is the original concept of GDP. In the Nominal method, market exchange rates are used for conversion. It does not take into account differences in the cost of living in different countries. Fluctuations in the country's currency exchange rates may change a country's ranking from one year to the next, even though they often make little or no difference to the standard of living of its population.

PPP basis is arguably more useful when comparing differences in living standards between nations. A haircut in New York is more expensive than in Lima; the price of a taxi ride of the same distance is higher in Paris than in Tunis, and a ticket to a cricket game costs more in London than in Lahore. PPP is an exchange rate at which one country's currency is converted into that of the second country to purchase the same volume of goods and services in both countries. If a hamburger is selling in London for £2 and in New York for $4, this will imply a PPP exchange rate of 1 pound to 2 U.S. dollars. PPP exchange rates are relatively stable over time. The drawback of PPP is that PPP is harder to measure than nominal.

Out of 194 countries/economies, 182 have higher GDP on a PPP basis, and 11 have higher nominal. For the United States, both are identical.

Sudan has the highest difference between PPP and nominal gdp calculation. GDP (PPP) of South Sudan is 5.1 times greater than GDP (nominal). Five countries have ppp to the nominal ratio between 4-5, and 37 economies have higher ppp values above three times. This value is the lowest for Switzerland (0.835).

There is a large gap between nominal and PPP-based GDP in emerging markets and developing countries. But for advanced countries, the difference is much closer. Out of 37 economies with a ratio above 3, 34 have gdp (nominal) per capita below $6000. Out of 11 economies with a ppp to a nominal ratio of less than one (i.e., ppp value is less than nominal), five are among the ten richest, and six are among the 20 richest economies. Among the top 20 richest, none have a ppp to nominal ratio above 2.

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GDP (Nominal) vs GDP (PPP)