Exemplar: Comparing the size of national economies
The absolute size of economy is often measured as GDP or GNI. Every country in the world publishes such a figure for its own economy. We have looked at the general problem of comparability between different countries' national accounts and how it is being solved. But there is still an obvious conceptual problem.
Published GDP or GNI is originally produced in the currency unit of its own country (its Local Currency Unit or LCU). So to make cross national comparisons, each local figure has to be converted to a common standard. Exchange rates are the most obvious way to do this.
As we have seen there are many kinds of exchange rate. Most market or official exchange rates do not adequately reflect relative price levels between countries, and economic aggregates. So even the basic size of an economy - how much economic activity is going on, how many goods and services are being produced and sold becomes ambiguous!
This means that many other phenomena such as productivity, welfare, distribution of income and wealth, extent of poverty, efficient use of energy, carbon dioxide emissions etc. that require directly, or as a ratio, some form of measure of economic size or economic growth are not so easily measured
Purchasing Power Parity (PPP) rates can however be used, at least to make cross national comparisons
Purchasing Power Parity estimates of GDP and GNI, their component parts and indeed value added by products and product groups are available on a number of sources such as the World Bank. The common 'currency' to which GDP or GNI data has been converted is often referred to as 'international' US dollars.
