The Definition of Worlds

Rudra
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The Definition of Worlds

Postby Rudra » 05 Jun 2002 23:24

the word 'third world' far from being based
on some political or economic yardstick has
become a derogatory word to mean everything
poor,of darker skin,dirty,incompetent,useless
and such. so you have it being used all over
like 'third world standards', 'third world
politics'.....

Can someone explain what exactly these terms
first, second and third world (were) based on ?

also where is the 2nd world. I seldom hear any
of it.

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Re: The Definition of Worlds

Postby Sridhar » 05 Jun 2002 23:37

Second World referred to the Communist bloc.

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Re: The Definition of Worlds

Postby Vick » 06 Jun 2002 00:17

The terms came about post WWII.

First world: Allies and countries oriented towards the Allies (Edited: I guess I should say, countries siding with the US/UK and other market economies and (pseudo)democracies)

Second world: Sov. bloc and countries oriented towards them (ie. Eastern Europe)

Third wold: Former colonies with no/marginal real power or influence

Someone correct me if I am wrong but please be gentle. :)

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Re: The Definition of Worlds

Postby Guest » 06 Jun 2002 00:44

Although I don't know where it started, that sounds about right.

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Re: The Definition of Worlds

Postby Harsh » 06 Jun 2002 01:25

iirc it was Nehru who coined (or at least popularized) the term "third world" when referring to the members of the nonaligned movement as a new "third world" that rises above and beyond the 'new world' (America => W. Bloc) and the 'old world' (Euro Colonialists, Soviets => E. Bloc.) It was picked up by a newspaper and thus popularized.

Regardless, the terms were archaic then and even more so now. The UN prefers the more PC terms "developed", "less developed", and "developing" countries.

In a nutshell, fully industrialized countries (US, UK, Japan) are "developed", countries which are less industrialized, but have massive potential/clout (China, India, Brazil) are "developing"), and poor, highly-agriculture/subsistence-based countries (Somalia, Guyana, Pakistan) are "less developed".

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Re: The Definition of Worlds

Postby shim george » 06 Jun 2002 02:01

First World would be developing countries.
Ex) U.S.A , England Germany "West"

Second World refers to Communist countries like Sridhar said.
Ex.) Cuba, North Korea?

Third World refers to developing countries and some are dirt-poor countries with no progress (India is not dirt-poor and is developing painfully slow).

Then I guess there are terrorist states.
Ex.) PAKISTAN

One question, the Middle East, countries like Saudi Arabia, Oman, Kuwait, U.A.E, are they First World? Also what about places like Tunisia, Egypt and Morocco?

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Re: The Definition of Worlds

Postby Narayan_L » 06 Jun 2002 02:38

Guru D:

Check the following link:

http://www.thirdworldtraveler.com/General/ThirdWorld_def.html

Excerpt:

THIRD WORLD -- the economically underdeveloped countries of Asia, Africa, Oceania, and Latin America, considered as an entity with common characteristics, such as poverty, high birthrates, and economic dependence on the advanced countries. The French demographer Alfred Sauvy coined the expression ("tiers monde" in French) in 1952 by analogy with the "third estate," the commoners of France before and during the French Revolution-as opposed to priests and nobles, comprising the first and second estates respectively. Like the third estate, wrote Sauvy, the third world is nothing, and it "wants to be something." The term therefore implies that the third world is exploited, much as the third estate was exploited, and that, like the third estate its destiny is a revolutionary one. It conveys as well a second idea, also discussed by Sauvy, that of non-alignment, for the third world belongs neither to the industrialized capitalist world nor to the industrialized Communist bloc. The expression third world was used at the 1955 conference of Afro-Asian countries held in Bandung, Indonesia. In 1956 a group of social scientists associated with Sauvy's National Institute of Demographic Studies, in Paris, published a book called Le Tiers-Monde. Three years later, the French economist Francois Perroux launched a new journal, on problems of underdevelopment, with the same title. By the end of the 1950's the term was frequently employed in the French media to refer to the underdeveloped countries of Asia, Africa, Oceania, and Latin America

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Re: The Definition of Worlds

Postby Umrao » 06 Jun 2002 02:42

Third world is now a derogatory word. It was changed to "Developing World" in 1968 UNCTAD.

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Re: The Definition of Worlds

Postby Abhijeet » 06 Jun 2002 03:00

I've never quite figured out what criteria are used to classify what countries are "developed" or "developing". For example, the magazine The Economist has a section at the end where they list various indices of "developing" and "developed" economies (GDP growth, inflation etc). Singapore and Hong Kong (separate from China) are listed under the "developing" economies even though their per capita GDP is probably the same as most Western European countries. What other criteria, if any, might place them in this list?

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Re: The Definition of Worlds

Postby svinayak » 06 Jun 2002 03:10

Several words used interchangebly

Third Bloc ( geopolitical based)
Third World ( social indicators based )
Developing country ( economy based with a healthy GDP growth)
Emerging market ( economy turning to a market based and integrating with the leading economies ( India))
Low/semi industrialized ( percentage of population connected to industrial activity ( India and China both fall into this category but also have market based economy))
Poor country ( Per capita based )
Industrial ( Per capita energy consumption)

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Re: The Definition of Worlds

Postby Rudra » 06 Jun 2002 08:11

The Economist seems to be anal-retentive as usual.
Singapore and HK by any measure of social or
economic indicators are ahead of most european
countries. So they firmly belong in the "first"
world.

The "first world" as in pro-west had some bad
flaws as lots of banana republics like Pakistan
have been pro-west (officially) for quite a while
now.

So if we settle on some economic criteria to
decide the layers, what exactly does India need
to do for moving into 2nd world ? are there
hard quantitative criteria like literacy, per
capita income that define the boundaries?

time to enforce some discipline on the usage
of this word.

My interest was aroused by some idiot on CNN
who chaired a program called "fifa football who
cares?" and tried to make the case that football
was a useless sport played by poor, dirty and
disease infested third-world types (he used these
or very similar phrase).

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Re: The Definition of Worlds

Postby member_4004 » 06 Jun 2002 21:46

And you can coin a new terminolgy :

"Ne(i)ther World" countries (pun intended) : the only member of which is TSP.

:rotfl:

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Re: The Definition of Worlds

Postby Narayan_L » 07 Jun 2002 04:17

It is my observation (which is quite definite usually ;) ), that The Economist demarcates the world into "rich" and "poor" (or "developed" and "developing") using membership in the Organisation for Economic Cooperation and Development - The OECD, as the defining factor. The OECD, usually referred to as a sort of "rich man's club" in economic circles, has two members which cannot exactly be considered "rich" - Mexico and Turkey. Two other recent entrants, S. Korea and Slovenia could be considered rich based on several measures, especially the former.

One can also make a not-so-happy observation (at least in recent times) that whenever a state has joined the OECD, all economic hell has broken loose in that state. Cases in point, Mexico (1994), South Korea (1997). True to the sobriquet, Turkey has indeed been the "sick man of Europe" for much of the 90's and beyond. So much for memberships in exclusive clubs. As an aside, the legendary Groucho Marx is to have famously stated (not the exact quote),"I do not want to belong to any club that will accept me as a member".

The Economist's economic data/indicator pages (usually the last 3 pages) roughly appear to be organized on the basis discussed above. The last page presents "Emerging Market Indicators" - which includes OECD members such as Mexico, S. Korea and Turkey; large markets such as Brazil and India; undoubtedly non-OECD "rich" nations such as Singapore, Taiwan (a nation for all practical purposes) and a non-nation - Hong Kong SAR.

Here is a complete list of nations that make up the OECD:

http://www.oecd.org/EN/countrylist/0,,EN-countrylist-0-nodirectorate-no-no-159-0,00.ht ml

Apart from wealth and higher standards of living (literacy, health, sanitation, etc), what sets the "rich" world apart from the "have nots" (usually) are some of the following:

- fully functioning democracy
- solid institutions (democratic, economic and financial)
- good governance, active and enlightened citizenry
- general respect and adherence to the rule of law, economic transparency, generally low levels of corruption (not the "ubiquitous" and "all-pervading" kind found in the developing world)
- level of integration to the global economic, finacial and political systems
- presence of social welfare systems (including "safety nets") and an overall higher quality of life

It could be argued that Mexico, S. Korea and Turkey hardly qualify for "rich man" status, based on some of the conditions stated above. It might be hard to believe, but several of these countries have done a lot more to improve their social and economic systems than our very own "World's greatest and largest democracy" has ever done. We have come a long way, but it is just not good enough.

Not to worry though. We will get there eventually after our more immediate and accurately placed diversions -diligent corrections of historical wrongs, monument re-constructions, astrologic orientation, Gujarat style religious blood-lettings, etc, etc.

Another way to look at the rich and poor divide is thru the UNDP approach, which attempts a stratification based on income levels - high, middle and low. UNDP and World Bank ("The World Development Report")figures in the last few years have used PPP based approaches to size up the world's economies. Using quality of life and income level comparisons much of the developing world would fall mostly in the low income, and some (including a few of the Asian Tiger economies) in the middle-income category. To provide some perspective, Malaysia and tiny Mauritius and Mexico are considered middle-income nations.

A question for Abhijeet_V who wrote:"Singapore and Hong Kong (separate from China) are listed under the "developing" economies even though their per capita GDP is probably the same as most Western European countries. What other criteria, if any, might place them in this list?"

Abhijeet_V:

Can you please name few of those "(most) Western European countries" with per capita GDP figures that are "probably the same" as the per capita GDP of Singapore and HK SAR? Just curious.

Thanks.

Guru D asks:"So if we settle on some economic criteria to decide the layers, what exactly does India need to do for moving into 2nd world ? are there hard quantitative criteria like literacy, per capita income that define the boundaries?"

Guru D:

It is not just a question of income. Several other factors go into making a nation "rich" (since that is what you seem to want). Spend some time at the OECD site. You might get some ideas.

http://www.oecd.org

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Re: The Definition of Worlds

Postby Abhijeet » 07 Jun 2002 08:03

The following figures are from the CIA World Factbook (http://www.cia.gov/cia/publications/factbook/).

- From the page for Hong Kong:

Economy - overview: [...] Per capita GDP compares with the level in the four big countries of Western Europe. [...]

GDP: purchasing power parity - $181 billion (2000 est.)
GDP - per capita: purchasing power parity - $25,400 (2000 est.)

- From the page for Singapore :

Economy - overview: Singapore is blessed with a highly developed and successful free-market economy, a remarkably open and corruption-free business environment, stable prices, and the fifth highest per capita GDP in the world. [...]
GDP: purchasing power parity - $109.8 billion (2000 est.)
GDP - per capita: purchasing power parity - $26,500 (2000 est.)

- From the page for the UK:

GDP - per capita: purchasing power parity - $22,800 (2000 est.)

- From the page for France:

GDP - per capita: purchasing power parity - $24,400 (2000 est.)

- From the page for Germany:

GDP - per capita: purchasing power parity - $23,400 (2000 est.)

- From the page for the Netherlands:

GDP - per capita: purchasing power parity - $24,400 (2000 est.)

You could have found out this information yourself, Narayan_L. There is a fairly good search engine called Google at http://www.google.com that lets you type in words and find out web pages related to them. Try typing in "hong kong per capita gdp" and look at the first link that comes up.

I'm surprised this seems to be news to you.

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Re: The Definition of Worlds

Postby Rudra » 07 Jun 2002 20:01

I see no reason why we should let others write
the "rules". I bet when India climbs the per-capita ladder, other measures will be found to
verbally punish and abuse it by the haw-haw Lords
in London. honorary whitedom can be a hard animal
to catch.

Even when a nation is "rich", there are other
flaws that are papered over like the increasing
phenomenon of the top 5% cornering most of the
money, but Govt & media mind-controls the lower
classes about the rule of law being fair and
everyone having a chance. the "rich" nations are
increasingly becoming only for the priviledged
suburban classes.

for me, I will just stick to per-capita income.

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Re: The Definition of Worlds

Postby Narayan_L » 07 Jun 2002 23:43

Guru D>>"I see no reason why we should let others write the "rules". I bet when India climbs the per-capita ladder, other measures will be found to
verbally punish and abuse it by the haw-haw Lords
in London. honorary whitedom can be a hard animal
to catch."

Guru D:

If that is the case, you need not have initiated this thread (not that I mind :) ). Nice sentiments though. Think about it next time when a Blue Ribbon chuggin', battered pick-up drivin', barfin' and belchin', quite possibly West Virginia based internationalist "idiot on CNN" makes inane remarks about things for which he doesn't have a clue. I am not recommending that we should try to bust our way into the OECD. The OECD's member states have a lot of positive characteristics that are worthy of emulation. Just as it is the case with everything else, learn and appreciate what the OECD member states have done right. Avoid or shun things that you might perceive as wrong, done by them.

AbhijeetV>>I'm surprised this seems to be news to you."

Yes! It iiiisss! :) I am constantly surprised by things. Like the advanced frontiers of Internet search technology where you undoubtedly exhibit masterly dominance.

There is a crucial difference in your post of 6/06 from your post of 6/05. I counted the term "Purchasing Power Parity" about 8 times in the former.

I am not oblivious to PPP based GDP calculations. This is more of a recent phenomenon as I alluded to in my last post. Many economists feel that PPP based GDP estimates do a better job of "sizing-up" an economy. PPP based estimates do a better job of capturing the considerable differential in prices of services in a developing economy, than a purely dollar-based estimation. There is a problem with this approach IMO, which you may be familiar with but may or may not agree.

Despite the growth of global trade in services especially in the GATT era , services in general are not considered "tradeable" in most cases. There are several obvious reasons why that is so, which we need not get into here. While PPP based estimates might do a better job of capturing the "true size" of an economy, it makes less of an impact in international trade which is still heavily weighted towards goods. PPP based estimates hardly excite anybody in global and multi-national companies from a marketing and pricing standpoint. Indira Nooyi, the CFO of Pepsico ideally would like most people in the world to pay $4.20 for a 96oz container of pure premium Tropicana OJ. She will be pleased if someone in India can shell out about Rs. 250 for the OJ or approx. RMB 42 in China. She doesn't care about PPP. Her main concern is to find as many people who can afford to spend Rs. 300 for 96oz of OJ (add transportation, infrastructure related "costs" such as poor refrigeration and distribution) in markets where a good portion of the population subsists on something close to a dollar a day. Some of these markets have very large GDPs based on PPP.

On the other hand, a hair-cut at "Select Saloon" on Kamarajar Salai in Coimbatore costs Rs.10, and a comparable one at Ed's Barber Shop in Bolingbrook, IL costs $10 excluding tip. This seems like an outrageously great opportunity for arbitrage. Why doesn't it happen?

In the context of this discussion that Guru D has initiated - "richness" of a nation, comparison of PPP based estimates of economies makes very little sense. Singapore, HK SAR are indeed "rich" in many aspects and they have come a long way. They will rise even further and so will India. But they need to do more to catch up with the OECD nations. But to say, that the economy of Singapore is as large as the UK's or France's purely based on PPP based comparisons can be quite misleading. Hence the curiosity on my part. Thanks for the lively reply.

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Re: The Definition of Worlds

Postby Abhijeet » 08 Jun 2002 05:33

Yes, my grasp of Internet search technology continues to amaze me every day too. :)

I was genuinely curious about the question I asked and thought the sarcasm in your reply was uncalled for. Be that as it may, however, here is a question about your previous post.

Why do you think that OJ will be priced the same in India as in the US? Many of the costs of production - for example, the labour costs of the farmers, as well as the opportunity costs associated with growing oranges versus some other fruit - are widely different in the US and in India. Why then would the same quantity of OJ cost Rs.250 in India if it costs $4.20 in the US?

My understanding is that PPP is relevant for goods which are produced domestically and where the major components in the cost of production are also domestic. For example, food, clothes or toothpaste cost far less than the dollar equivalent figure in India. However, most cars are more expensive in India than in the US - due to lack of economies of scale, true, but also because most machinery is imported and must be paid for in dollars.

My understanding of economics, sadly, falls far short of that of Internet searches, so I could be very wrong. I would welcome being corrected if so.

As an aside, note that we were not talking of the absolute size of any country's economy, as this quote from you: "Some of these markets have very large GDPs based on PPP." seems to indicate. We are always talking of per capita GDP, nominal or PPP. India has a very large PPP GDP but nobody is saying that we are quite "developed" yet. :)

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Re: The Definition of Worlds

Postby Rudra » 08 Jun 2002 19:28

Narayan_L, it is not necessary to be a patronizing
little czar and throw in a few anti-Parivari
"nuggets" into every discussion.

:rotfl:

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Re: The Definition of Worlds

Postby Narayan_L » 09 Jun 2002 01:14

Abhijeet_V:

Tropicana OJ or something else, PPP is based on what is generally referred to as the "Law of One Price" - that an identical basket of goods and services should cost the same regardless of location, because (in the long-run) any price-differential would be "arbitraged" away. The choice of Tropicana OJ was perhaps co-incidental, as I was reading Pepsico's form 10-K on the plane yesterday.

Here is a more popular illustration of the idea from Guru D's "anal-retentive" Economist magazine - the Big Mac index:

http://www.economist.com/markets/bigmac/displayStory.cfm?story_id=1098872

Give it a read. Then think about "services" in a developing economy. Do "services" offer the potential for arbitrage? Goods, which can be considered fully "tradeable" also have issues such as transaction costs (transportation, storage, perishability/shelf-life,etc) that greatly lower the potential for arbitrage. The "advantage" of (relatively) low service costs in developing economies is reflected in PPP-based estimates of GDP. Hence my note of caution.

Aside, the equivalent dollar price of Tropicana OJ (not pure premium, from concentrate) purchased from a department store in Coimbatore last year, was much higher than the $ price (regular) of a comparable product in a US grocery store. The concentrate did not come from India. It came from Brazil and Spain. One caveat. I am not fully sure if the product was legally imported into India. As in the bad old protectionist days (when smuggled Coke and Pepsi could be obtained for a premium. Turned out that crews of visiting vessels in Indian ports were the chief culprits in this trade :) ), I am told that rampant smuggling of consumer products, alcohol, and food (such as cheese, juice, etc) still occurs in India despite the lowered duties and removal of QRs.

Guru D:

Giggle, giggle! Only aiding your quest to turn everyone into "Hans", so that we may enrich our nation and ourselves by making "shoes, bicycles...", and not spend our energies on astrology and dealing with "disputed structures". :lol:

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Re: The Definition of Worlds

Postby SK Mody » 09 Jun 2002 04:00

Narayan_L, I have a question. Firstly let me admit that I'm quite confused about matters economic but I do attempt to straighten out my understanding once in a while. The question can perhaps be put in a nutshell as:-

If a glass of OJ in India costs 10/Rs and a roughly similar quality glass in the US costs $2.50 does that mean (assuming $1 = 50/Rs) that a glass of OJ drunk by an Indian in India, is worth 12 times less than the same glass drunk by an American in America?

A fully non-PPP measure of the GDP would imply that the above statement is true and I can understand somewhat how it _could_ be at least partly true but not with any clarity since I don't know how exactly "standard of living" is measured by ecconomists.

Perhaps I'm asking to understand too much :) but I thought I'd give it a shot anyway.

Regards,
Sandeep.

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Re: The Definition of Worlds

Postby Rudra » 09 Jun 2002 18:42

Giggle, giggle! Only aiding your quest to turn everyone into "Hans", so that we may enrich our nation and ourselves by making "shoes, bicycles...", and not spend our energies on astrology and dealing with "disputed structures".

> so do the right thing, post relevant info and
be done with it. parthian shots at the Parivar
in a purely economic thread are uncalled for.

feel free to criticize their economic policies
if you will.

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Re: The Definition of Worlds

Postby Kedar » 10 Jun 2002 07:09

Sandeep:

PPP v Absolute GDP. Let's say you are given $500 per week to live on in different cities of the world and let's use New York as a benchmark. If you take that $500 and let's say you get a certain bag of goodies (rent, transportation, clothes, etc.) Now in cities like Mumbai, Delhi, Cairo, Tehran, Manila you will be getting a lot more equivalent stuff for the $500. On the other hand, in more expensive cities like Tokyo, London, Paris you will get much less. Alternatively, for the same bag of goodies you will have to pay less in Mumbai vs New York but will have pay more in Tokyo.

Let's take two Desi computer engineers with exact qualifications i.e. Ram and Rahim. Ram decides to stay on in Bangalore and earns Rs. 48,000 per month or $1,000 per month. Rahim comes to San Jose and is earning $72,000 per year or $6000 per month. Of course, Ram's standard of living in Bangalore is definitely better than that of an American earning $1,000 a month in the US. It would be more like $6,000-7,000 per month or maybe even more. Similarly, Rahim's $6,000 per month in the US is not as great as earning Rs. 288,000 per month in India.

As Narayan correctly pointed out, there are certain services you cannot import but have to depend on local sources. For example, for my morning cup of coffee I have to pay the $1.25 in Palo Alto and buy it even though a similar cup of coffee will definitely cost less than Rs. 60 in Bangalore or any other Indian city. Same goes with rent on the house, gasoline for the car, etc.

Where the PPP fails or is irrelevant is in the matters of global trade. For example, if a barrel of oil costs $20, then that's what we have to pay and can't argue that other things are so cheap in India and based on PPP, the oil barrel shouldn't cost more than $4. I have been on both sides of the fence and it works like this.

a) What you have earned in India is good for living a comfortable life in India. However, for most of us (barring a few exceptions) what we have earned in India doesn't go too far if we want to spend it in more developed nations like the US and UK.

b) Alternatively, what we have earned in the US and want to spend it in India (vacation, buying a house) it will go much farther. We can buy the same brand name items like Lacoste, Benetton in India for a fraction of the price to that of the US.

In the hypothetical example I gave, let's say Ram is able to save 30% of his salary or Rs.14,400 per month. Rahim is able to save only 5% or $300 per month. If both decide to live, retire and die in Bangalore and San Jose then Ram will definitely be leading a more quality life. However, if Rahim decides to return to India after 20 years and he converts all his dollars into Rupees. Now Rahim will be able to lead a more quality life than Ram.

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Re: The Definition of Worlds

Postby SK Mody » 10 Jun 2002 10:21

Originally posted by Kedar Bhandary:
Sandeep:

PPP v Absolute GDP.
...
Where the PPP fails or is irrelevant is in the matters of global trade. For example, if a barrel of oil costs $20, then that's what we have to pay and can't argue that other things are so cheap in India and based on PPP, the oil barrel shouldn't cost more than $4. I have been on both sides of the fence and it works like this.

a) What you have earned in India is good for living a comfortable life in India. However, for most of us (barring a few exceptions) what we have earned in India doesn't go too far if we want to spend it in more developed nations like the US and UK.
...
Thanks for attempting to clarify. I was hoping for a rough explanation of how PPP is calculated. Having thought about it a little here is my laymans way of understanding it:-

PPP - PPP measure of the GDP is the measure relative to the particular distribution of goods and services consumed domestically. ie: The "reference basket of goods" is the set of goods (in their various proportions) consumed domestically. So the reference basket varies from country to country (since the proportion of various different goods varies from country to country)

In the case of absolute GDP, the reference basket of goods is taken as the set of goods consumed on a worldwide basis - and this single reference basket is used for all countries. So in this case the proportion of goods is the proportion consumed by the average "citizen of the world".

Thus for example since Indians (in relative terms) do not consume much gasoline, gasoline will not be heavily weighted in a PPP measure of Indian GDP. On the other hand in an global measure it will be much more heavily weighted.

The above example shows both the advantage and disadvantage of PPP measure. The disadvantage of PPP is that non-affordibility of a good or service is not taken into account. There are many Indians who could benefit with greater gasoline consumption but they cannot afford it.

On the other hand the disadvantage of "absolute" (global) GDP is also illustrated by the gasoline example - There are many Indians who do quite well without all that gasoline and non-consumption of gasoline does not necessarily mean low quality of life. So the disadvantage of global GDP is that the particular preferences of those countries that consume the most amount of goods affect the GDP calculation. The wants of the average American are different from the wants of an average Indian, but yet the reference distribution of goods is determined by the consumption pattern of the American.

Comments?

Regards,
Sandeep.

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Re: The Definition of Worlds

Postby Narayan_L » 13 Jun 2002 06:22

Kedar:

Great post.

SK Mody:

You asked,"I was hoping for a rough explanation of how PPP is calculated."

Please read the article on the Big Mac Index from The Economist, that I alluded to (and linked) in my last reply to Abhijeet_V. There is an "enlargable" inset in the same article, which describes in simple terms the calculation of the Big Mac index.

Between Kedar's reply and The Economist article, you should find some answers to your questions.

Please note that this discussion on PPP thus far has been in the context of how "accurate" or "effective" it is in estimating the size of an economy.

Guru D>>"so do the right thing, post relevant info and
be done with it. parthian shots at the Parivar
in a purely economic thread are uncalled for.

feel free to criticize their economic policies
if you will."

:) . What if one doesn't? Should one have to part with his "right-thumb", oh all knowing Guruji? :)

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Re: The Definition of Worlds

Postby SK Mody » 14 Jun 2002 11:04

Originally posted by Narayan_L:

You asked,"I was hoping for a rough explanation of how PPP is calculated."

Please read the article on the Big Mac Index from The Economist, that I alluded to (and linked) in my last reply to Abhijeet_V. There is an "enlargable" inset in the same article, which describes in simple terms the calculation of the Big Mac index.

Between Kedar's reply and The Economist article, you should find some answers to your questions.

Please note that this discussion on PPP thus far has been in the context of how "accurate" or "effective" it is in estimating the size of an economy.
Thanks. So it is worse than I thought. The basket of goods is still an international basket. It would be interesting to know how the proportions of the various goods in this basket are determined (perhaps by the per-capita worldwide consumption?). I feel that in reality (since wants are different in different countries) - the set of goods chosen should vary from country to country based on the local conditions.

Now no two people will agree to what constitutes the correct set of goods for any country, but wouldn't it be possible to conduct surveys among people to find out? That is - ask people in surveys what their consumption preferences would be if they had (within some reasonable limit) all the money they wanted. Then construct the basket based on this. I am not just talking about consumer goods. Potential consumption of intermediate and capital goods also can be measured by this survey.

Of course this too is not perfect since an individual or organization cannot accurately estimate what he will buy based on a hypothetical income - but it's probably better than a "one-size-fits all" basket of goods.

This is how I _thought_ PPP measure would be similar to somewhat (see my previuos post). Obviously I was wrong and I'm surprised that the "basket of goods" is identical for all countries. To me that seems like a very biased (and presumptious) way to measure the real income.

Appreciate any comments.

[added later]
So here is a definition of "quality of life":-
QOL = What you have/What you want.

or maybe:-

QOL = AIPGC/APIIC

where AIPGC = Average income potential under the given circumstances.

and APIIC = Average potential income under ideal circumstances.

Regards,
Sandeep.


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