馃挵 PURCHASING POWER PARITY: 5 FACTORS 馃挵
Purchasing Power Parity (PPP) is a measure of the relative purchasing power of different currencies. It is calculated by comparing the prices of a basket of goods and services in different countries. The PPP is often used to compare the standard of living in different countries. A country with a higher PPP is generally considered to have a higher standard of living because its citizens can afford to buy more goods and services with their money. The source of this metric was obtained from the World Bank (2022). What might be some of the factors involved?
The current situation will increase State involvement. The excess of economic stimulus, the inflation post-pandemic and the geopolitical tension, has hurt the global PPP. Therefore, PPP is a dependent variable that has a direct impact on quality of life, and it is interest of any National Security. The independent variables were chosen as those in which state decisions are strategic and relevant:
- % GDP in Research & Development Expense (World Bank, 2022)
- % GDP in Commercial Balance (idem)
- % GDP in Health Public Expense (idem)
- % GDP in Tax Revenues (IMF, 2022)
- Corruption Perception Index (Transparency International, 2022)
The sample was based on 50 countries with the largest economies (26 Europeans, 7 Americans, 14 Asians, and 3 Africans). The result was a model in which all the chosen variables explain ± 78.35% the PPP behaviour and are ± 89.75% correlated with it. In the chart can be appreciated the individual impact of each one on the PPP (R^2) and their individual correlation (R). The bigger influence comes from the Corruption levels (± 74%), the Health Public Expense (± 44.3%) and the Research & Development Expense (± 43.5%).
Nevertheless, there is ± 21.65% which does not explain the PPP. There are other factors involved such a Exchange Rates, Inflation, Economic Development and Government Decisions. Perhaps, politics and policies are most important in how, how much and on what resources are spent and distributed. The challenge is measure it easily.
As example, the Mexican PPP was $21,866.5 USD with the next stats:
- R&D 0.75%
- CB -0.29%
- Health 6.2%
- Tax 17.9%
- Corruption 32
Using the model built, if only is modified R&D to 3.5%, Health to 9.5%, Corruption Index to 35 and maintaining the same rates in Commercial Balance and Tax Revenue, the PPP would be ± $32,602 USD, similar to Chile with ± $33,081 USD. However, the Chilean stats are:
- R&D 0.37%
- CB 0.6%
- Health 7.8%
- Tax 21.3%
- Corruption 53
In fact, if the median of all values is taken and is the R&D 1.39%, CB -1.4%, Health 8.5%, Tax 32.15% and Corruption 55, the result would be ± $36,000 USD; this is similar to Israel with ± $36,218.4 USD. However, the Israeli stats are:
- R&D 4.94%
- CB 0.32%
- Health 8.5%
- Tax 42.4%
- Corruption 56
Of course, the model has limitation. The main one is the part which is not explained by this and the weak linkage of Tax Revenue or Commercial Balance with PPP. On the other hand, like any econometric model, reality is very complex and changes in any parameter do not mean that everything will magically improve. However, it can be a nice approach of what could be.
Even so, the model shows the powerful of politics and it is demonstrated in the hight correlation of Corruption Perception in contrast with the other factors. A priori, an efficient and wise policy impacted on PPP. Despite the CB and Tax Revenue are important, it may be difficult to change them for political and geopolitical reasons. Improve the Corruption levels must be an imperative of any government. However, Health and Research are basic items for any National Security policy where the decision is purely strategic and necessary if the objective is welfare.
Finally, as a gift from Joel Padilla, the model equation and the PPP list of countries (at the end) are:
PPP estimated = 143305.3717(x1) + 41653.34541(x2) + 177526.3517(x3) - 29551.63625(x4) + 559.521173(x5) - 2363.774326
The best analysis is yours!
J. Joel Padilla
https://www.linkedin.com/in/joelpadilla/recent-activity/
https://jjplindex.blogspot.com/
Copyright: Joel Padilla 2023
PURCHASING POWER PARITY [$ USD 2022]
Austria $46322.9
Belgium $43414
Bulgaria $24552.2
Croatia $31861.9
Czech Republic $41120.3
Denmark $55193.4
Finland $48636.5
France $46835.2
Germany $45726.7
Greece $31176.5
Hungary $33482.2
Ireland $62510.6
Italy $43766.2
Netherlands $47789.1
Norway $65336.7
Poland $34022.3
Portugal $38578
Romania $26533.1
Slovakia $37810
Slovenia $39219.8
Spain $42022.1
Sweden $55582.1
Switzerland $69423.1
United Kingdom $46645.4
Argentina $22713.2
Brazil $17690.9
Canada $48301.3
Chile $33080.9
Colombia $19836.7
Mexico $21866.5
United States $63221
Australia $58140.9
China $20360.4
India $12110.8
Indonesia $13124.6
Iran $13894.8
Israel $36218.4
Japan $40551.7
Malaysia $28085
Russia $26285.9
Saudi Arabia $34788.5
Singapore $65193.4
South Korea $32184.5
Thailand $21234.3
Turkey $24373.9
United Arab Emirates $47319.6
Vietnam $16932.5
Egypt $13568.3
Nigeria $3968.5
South Africa $23064.2
Purchasing Power Parity (PPP) is a measure of the relative purchasing power of different currencies. It is calculated by comparing the prices of a basket of goods and services in different countries. The PPP is often used to compare the standard of living in different countries. A country with a higher PPP is generally considered to have a higher standard of living because its citizens can afford to buy more goods and services with their money. The source of this metric was obtained from the World Bank (2022). What might be some of the factors involved?
The current situation will increase State involvement. The excess of economic stimulus, the inflation post-pandemic and the geopolitical tension, has hurt the global PPP. Therefore, PPP is a dependent variable that has a direct impact on quality of life, and it is interest of any National Security. The independent variables were chosen as those in which state decisions are strategic and relevant:
- % GDP in Research & Development Expense (World Bank, 2022)
- % GDP in Commercial Balance (idem)
- % GDP in Health Public Expense (idem)
- % GDP in Tax Revenues (IMF, 2022)
- Corruption Perception Index (Transparency International, 2022)
The sample was based on 50 countries with the largest economies (26 Europeans, 7 Americans, 14 Asians, and 3 Africans). The result was a model in which all the chosen variables explain ± 78.35% the PPP behaviour and are ± 89.75% correlated with it. In the chart can be appreciated the individual impact of each one on the PPP (R^2) and their individual correlation (R). The bigger influence comes from the Corruption levels (± 74%), the Health Public Expense (± 44.3%) and the Research & Development Expense (± 43.5%).
Nevertheless, there is ± 21.65% which does not explain the PPP. There are other factors involved such a Exchange Rates, Inflation, Economic Development and Government Decisions. Perhaps, politics and policies are most important in how, how much and on what resources are spent and distributed. The challenge is measure it easily.
As example, the Mexican PPP was $21,866.5 USD with the next stats:
- R&D 0.75%
- CB -0.29%
- Health 6.2%
- Tax 17.9%
- Corruption 32
Using the model built, if only is modified R&D to 3.5%, Health to 9.5%, Corruption Index to 35 and maintaining the same rates in Commercial Balance and Tax Revenue, the PPP would be ± $32,602 USD, similar to Chile with ± $33,081 USD. However, the Chilean stats are:
- R&D 0.37%
- CB 0.6%
- Health 7.8%
- Tax 21.3%
- Corruption 53
In fact, if the median of all values is taken and is the R&D 1.39%, CB -1.4%, Health 8.5%, Tax 32.15% and Corruption 55, the result would be ± $36,000 USD; this is similar to Israel with ± $36,218.4 USD. However, the Israeli stats are:
- R&D 4.94%
- CB 0.32%
- Health 8.5%
- Tax 42.4%
- Corruption 56
Of course, the model has limitation. The main one is the part which is not explained by this and the weak linkage of Tax Revenue or Commercial Balance with PPP. On the other hand, like any econometric model, reality is very complex and changes in any parameter do not mean that everything will magically improve. However, it can be a nice approach of what could be.
Even so, the model shows the powerful of politics and it is demonstrated in the hight correlation of Corruption Perception in contrast with the other factors. A priori, an efficient and wise policy impacted on PPP. Despite the CB and Tax Revenue are important, it may be difficult to change them for political and geopolitical reasons. Improve the Corruption levels must be an imperative of any government. However, Health and Research are basic items for any National Security policy where the decision is purely strategic and necessary if the objective is welfare.
Finally, as a gift from Joel Padilla, the model equation and the PPP list of countries (at the end) are:
PPP estimated = 143305.3717(x1) + 41653.34541(x2) + 177526.3517(x3) - 29551.63625(x4) + 559.521173(x5) - 2363.774326
The best analysis is yours!
J. Joel Padilla
https://www.linkedin.com/in/joelpadilla/recent-activity/
https://jjplindex.blogspot.com/
Copyright: Joel Padilla 2023
PURCHASING POWER PARITY [$ USD 2022]
Austria $46322.9
Belgium $43414
Bulgaria $24552.2
Croatia $31861.9
Czech Republic $41120.3
Denmark $55193.4
Finland $48636.5
France $46835.2
Germany $45726.7
Greece $31176.5
Hungary $33482.2
Ireland $62510.6
Italy $43766.2
Netherlands $47789.1
Norway $65336.7
Poland $34022.3
Portugal $38578
Romania $26533.1
Slovakia $37810
Slovenia $39219.8
Spain $42022.1
Sweden $55582.1
Switzerland $69423.1
United Kingdom $46645.4
Argentina $22713.2
Brazil $17690.9
Canada $48301.3
Chile $33080.9
Colombia $19836.7
Mexico $21866.5
United States $63221
Australia $58140.9
China $20360.4
India $12110.8
Indonesia $13124.6
Iran $13894.8
Israel $36218.4
Japan $40551.7
Malaysia $28085
Russia $26285.9
Saudi Arabia $34788.5
Singapore $65193.4
South Korea $32184.5
Thailand $21234.3
Turkey $24373.9
United Arab Emirates $47319.6
Vietnam $16932.5
Egypt $13568.3
Nigeria $3968.5
South Africa $23064.2
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