PPP vs GDP: What's the Difference?
TL;DR: GDP measures the total size of an economy. Purchasing Power Parity (PPP) is a method for converting currencies fairly. "GDP (PPP)" combines the two: it's GDP converted using PPP factors instead of market exchange rates, so economies with different price levels can be compared fairly.
What GDP measures
Gross Domestic Product (GDP) is the total value of all goods and services a country produces in a given period. It's the standard measure of the overall size of an economy. See the Wikipedia entry on GDP for the general economic theory.
What PPP measures
Purchasing Power Parity compares two currencies through a "basket of goods" approach: two currencies are at parity when that basket costs the same amount in both countries, once exchange rates are accounted for. See our full explanation of PPP for more detail.
How they combine: GDP (PPP)
Comparing countries' GDP at market exchange rates can be misleading, because exchange rates move for many reasons unrelated to local prices, such as interest rates or speculation. "GDP (PPP)" converts each country's GDP using its PPP conversion factor instead, correcting for price-level differences so the comparison reflects what each economy can actually produce and buy, not just a currency-market snapshot.
Comparison table
| Concept | What it measures | When to use it |
|---|---|---|
| GDP (nominal) | A country's total economic output, converted to a common currency at the market exchange rate. | Comparing the raw market size of economies, e.g. for trade or investment flows. |
| GDP (PPP) | A country's total economic output, converted using PPP factors instead of market exchange rates. | Comparing economies fairly when price levels differ a lot between countries. |
| PPP salary conversion (this site) | An individual salary, converted between two countries using the same PPP conversion factors. | Comparing a personal salary or job offer across countries, not a national total. |
Frequently asked questions
Is GDP (PPP) the same as a country's PPP conversion factor?
No. A country's PPP conversion factor is a per-unit-currency figure used to convert an individual amount, like a salary, between two currencies. GDP (PPP) is a national total: a country's entire economic output, converted using PPP factors instead of market exchange rates so it can be compared fairly against other countries.
Why do economists use PPP-adjusted GDP instead of nominal GDP?
Nominal GDP, converted at market exchange rates, can make an economy look larger or smaller than it really is in terms of what people there can actually buy, because exchange rates don't track local price levels closely. PPP-adjusted GDP corrects for that using the same basket-of-goods logic behind any PPP conversion.