Robert Summers and Alan Heston published data for 130 countries that used purchasing power parity, rather than market exchange rates, to compare GDP across countries. As a result, measured per capita incomes of developing countries rose relative to per capita incomes in developed countries. This is most likely because:

Question

Quizplus · Accepted Answer

Using purchasing power parity (PPP) to compare GDP across countries takes into account the relative cost of living and the inflation rates of the countries, rather than using just market exchange rates. Since prices of standard goods in developing countries are generally lower than those in developed countries, using PPP increases the relative per capita incomes of developing countries when compared to developed countries. This method provides a more accurate measure of the economic well-being of the population.

Robert Summers and Alan Heston Published Data for 130 Countries