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Saturday, 30 October, 1999, 12:52 GMT 13:52 UK
GNP per capita
A crude measure of a country's wealth is Gross National Product (GNP) per capita: the figure for GNP divided by the population.

In order to compare GNP per capita across countries there is the need to use a common currency. Most international institutions like the World Bank use the US dollar for this purpose.

But this may give a misleading picture of how much an individual in a particular country can actually purchase in his own currency. Many of the transactions which make up the income of an economy are not traded internationally.

The dollar value of what the average Korean earns may have plummeted since their currency, the won, depreciated by a third against the dollar. But in all likelihood it still costs roughly the same to purchase a haircut as this service is not traded.

The fluctuating nominal values of currencies also makes credible comparisons difficult. The Economist newspaper regularly reports its Big Mac index - the price of a McDonalds hamburger in different currencies - in a no-garnish, ready-to-go estimate of the real value of the dollar in different countries.

To respond to these problems, economists have devised an alternative measure known as Purchasing Power Parity (PPP) which tracks the cost of a basket of traded and non-traded goods and services across countries.

This gives a better indication of the purchasing power of an economy and consequently its relative wealth.

The 1998 World Development Indicators, published by the World Bank, show that in 1996, on a PPP basis, China's GNP was $4,047 billion, making it the second largest economy in the world. The UK's GNP on a PPP basis stood at $1,173 billion in 1996. Under conventional estimates China's GNP was $745 billion and the UK's $1,152 billion in the same period.

GNP in PPP terms is not without its problems. Critics point out that the baskets of goods and services across economies are not always directly comparable. In some countries, for example, services such as healthcare are free and carried out by the government. The statistician must estimate the cost of providing these services which may differ greatly from the cost of purchasing private medical services in other countries.

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