Which conversion factor / formula should be used to convert USD2005 PPP per-capita GDP to USD2011 PPP per-capita GDP for different countries?

I have found an identical question, but without a clear, satisfactory answer here: Conversion of GDP PPP International \$ 2005 into GDP PPP International \$ 2011

  • $\begingroup$ Is the ratio of values from PPP2011 to PPP2005 the same? (Comparing between values from the same year.) $\endgroup$ – ahorn Mar 9 at 4:54

Any real figure is based on a basket of goods, obviously, and here, we have a representative basket that is common to all countries across the world. When purchasing power parity prices are recalculated (as with any price index that is recalculated), the weighting of goods in the basket changes. Goods that have improved in technology will be more valuable than those same goods from a decade ago—this would push up the price index unless the weights on those goods are reduced, to reflect that the nature of those goods have changed, and that people buy them more parsimoniously.

So, PPP figures from 2011 will be based on a basket that contain multiple items inside it, which have different weights to the 2005 figures. Different countries produce goods at different levels of technology—some countries power ahead in technology, whilst others lag behind—so this causes the representation of the PPP basket to diverge from what is actually consumed in those countries (I imagine the PPP basket attempts to find the average representation). Thus, in the recalculated figures (from 2011) you will find different growth rates for the countries compared to the 2005 figures.

In short, you will need to know the weightings for all the goods in the baskets from 2005 and 2011 (and the levels of output in those categories for each country) in order to process the recalculation! It is not simply a matter of changing the base year, because the basket has changed.


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