Abstract
Despite the accumulating evidence of systematic error, the most common means of making international comparisons still remains the conversion of incomes expressed in own-currencies to a numeraire currency, most often the US dollar, via the exchange rate. The procedure has long been held suspect by travellers who could observe that some countries were dear and others inexpensive – i.e. that exchange rates did not reflect the purchasing power of currencies. As will be shown, the purchasing power of the currencies of poor countries tends to be understated by exchange rates. Exchange-rate conversions thus tend to exaggerate the dispersion of the real per capita incomes of the different nations.
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Kravis, I.B. (2018). International Income Comparisons. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_708
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DOI: https://doi.org/10.1057/978-1-349-95189-5_708
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