Why Purchasing Power Parity is Important
Purchasing Power Parity exchange rates are used to ensure that a loaf of bread is priced equivalently across the world to equalize purchasing power.
In Africa and throughout the world purchasing power parity is a formula for measuring prices in different localities. Prices of goods and services differ greatly across countries, it is important purchasing power parity exchange rates are constructed to ensure that the same quantity of goods and services are price equivalent across the world, price of a product in a foreign country can be very different from the same product in your own home town.
In 1990, a group of independent researchers and the World Bank proposed to measure the world’s poor using the standards of the poorest countries in the World. They examined national poverty lines from some of the poorest countries in the world, and converted the lines to a common currency by using purchasing power parity exchange rates.
The Purchasing Power Parity exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries. Purchasing Power Parity converts into US dollar and, more importantly, into the currencies of each developing country.
Purchasing Power Parity allows for economists to compare economic productivity and standards of living between countries. The current Purchasing Power Parity is computed from 2011 inflated numbers based on price data from across the world, and the responsibility for determining a particular year’s Purchasing Power Parity rests with the International Comparison Program, an independent statistical program with a Global Office housed within the World Bank’s Development Data Group.
Jamaica Purchasing Power Parity is $9,761 and Kenya $4,330, one Purchasing Power Parity dollar should buy the same loaf of bread in Kenya, or Jamaica therefore; think in Purchasing Power Parity terms when analyzing the data below.
|African County||Purchasing Power Parity 2019|
|Central African Republic||$945|
|Democratic Republic of the Congo||$1,098|
|Republic of the Congo||$3,298|
|Sao Tome and Principe||$3,964|
|South Sudan||No Data|
Does not having money make you poor?
Living Standards Measurement.
Research estimates that by 2030 up to two-thirds of the global extreme poor may be living in fragile and conflict-affected economies. There are many non-monetary indicators on education, health, sanitation, water, and electricity that are extremely important for understanding the many dimensions of poverty that people experience. These are an important complement to monetary measures of poverty and are crucial to effectively improving the lives of the poorest.
The World Bank estimates that 40 million to 60 million people will fall into extreme poverty living under $1.90 per day in 2020. The global extreme poverty rate could rise by 0.3 to 0.7 percentage points, to around 9 percent in 2020.
Access to good schools, health care, electricity, safe water, and other critical services remains elusive for many people, often determined by socioeconomic status, gender, ethnicity, and geography.