Difference between the International Dollar and PPP

Question

This may be a very rudimentary question but I am trying to discern the difference between purchasing power parity and the international dollar.

I am starting to work on a project where we are trying to look at infant mortality rates and their relation to GDP along with some other indicators from different countries. I have started to look for different data through GapMinder.

Reading some of the variable descriptions they claim to have the GDP in PPP and then some other reference GDP PPP in international dollars.

So I then took to the internet looking for the difference. The Wikipedia artilce on the Geary–Khamis dollar is leading me to believe they are the same thing if i am using USD as my base dollar unit?

So my question ultimately would be: What is the difference between the international dollar and PPP?

Answer 1

They are different stages of the same process. You convert a country's GDP into international dollars USING PPP.

PPP are rates. They are a relation between prices in different countries. International dollars is a unit of measurement.

The World Bank says "GDP per capita based on purchasing power parity (PPP). PPP GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States"

Answer 2

I had the same question and I figured out the answer! I am looking into FAOSTAT> Value of Agricultural Production (http://www.fao.org/faostat/en/#data/QV) and there they have:

• Gross Production Value (constant 2014-2016 thousand US\$)
• Gross Production Value (constant 2014-2016 thousand I\$)

So, my understanding is that in the first one (constant... US$), the Gross Production Value is given as if the exchange rate between local currency, say EUR, and USD was pegged to the average 2014-2016 FX (... and also remove USD inflation).

As for the second one, I was quite confused... The World Bank's data helpdesk says something that sounds just like PPP:

An international dollar would buy in the cited country a comparable amount of goods and services a U.S. dollar would buy in the United States [...]

Also Wikipedia's definition at the top sounds just like PPP to me:

[...] is a hypothetical unit of currency that has the same purchasing power parity that the U.S. dollar had in the United States at a given point in time [...]

The "Eureka" moment has come to me when looking at the calculation explanation in Wikipedia: https://en.wikipedia.org/wiki/International_dollar#Description_of_Geary-Khamis_system

It is not just a PPP, where you keep an exchange rate constant. It is also averaging all prices of the same good across countries, worldwide. And this is confirmed by the FAO here: http://www.fao.org/waicent/faostat/agricult/indices-e.htm

[...] expressed in so-called”international dollars”, are derived using a Geary-Khamis formula for the agricultural sector. This method assigns a single “price” to each commodity

So the Geary-Khamis method is used mostly (if not only) in economics to derive a single worldwide price for commodities. And because the formula also uses PPP, then you also get the same price across time.

I doubled checked with FAOSTAT data.

a) I got the "Gross Production Value (constant 2014-2016 thousand I$)" of a commodity (select all countries, many years) here: http://www.fao.org/faostat/en/#data/QV

b) I got the "Production Quantity" for that commodity (select all countries, many years) here: http://www.fao.org/faostat/en/#data/QC

c) For each country/year, I divided (a) by (b), and (as expected) I got the same number everywhere. Well, almost... for all countries with big "Production Quantity" volumes I got the same number, but for countries with smaller volumes the figure was a bit fluctuating.

Just to be sure I understood well, I repeated the same as above, but this time for the "Gross Production Value (constant 2014-2016 thousand US$)". As expected, for each country I got the same number across all years. But a different number for each country. Again... for all countries with big "Production Quantity" volumes I got the same number across all years, but for countries with smaller volumes the figure was a bit fluctuating.