I literally started out referencing one of the best economists on the subject ever. He was instrumental to the development of the ICP matrix and PPP model used by a number of your quoted international organisations.
So try again maybe? It is not my "pet theory".
It is apparently only your pet theory.
Nowhere did late Dr Mahbub ul Haq claim what you did:
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
If you can show where late Dr Mahbub ul Haq claimed the above, I am willing to stand corrected.
If you can not show where he claimed the above, you should be willing to stand corrected.
A reference's relevance to an entity is very much tied to the exposure and permeation of that reference to that entity we are trying to measure. Extrapolating a 3% basis to a 100% is very different from extrapolating 10% basis to 100% and 20% basis to 100% and so on (especially if sensitivity is dictated by the envelope constraint at say around 30% when it comes to trade/current account of large countries).
I don't understand any of what you said above.
What is "envelope constraint", "reference" and "sensitivity" in this context?
What are the meanings of these terms and how are they relevant to any of the earlier discussions?
If the (foreign) balance of payments makes up a tiny % of total production in a country....it is only so relevant to extrapolating a number determined by that BoP (the exchange rate) to the whole production and consumption of that country.
A better method might be to look at how well a country would fare if it tried to attain complete autarky.
If a country like India were to be completely cut off from all forms of foreign interactions, how well would it fare? What would its GDP or GNI statistics indicate in those circumstances?
Moreover, without crucial
foreign imports powering whatever meagre development occurs in some of its more populous cities and
foreign imports powering the consumeristic lifestyles of a tiny sliver of its huge population, how well would the consumers fare?
Exchange rate or Purchasing Power Parity indices may not capture these facts of life well.
However, those are all in the realm of hypotheticals.
How are they relevant to your pet theory?
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
It would be similar to how you design any index, prices or otherwise. Are they relevant to the body by sampling across its breadth...or are they skewed to a very small portion and profile?
That is the whole underlying basis of the ICP and PPP.
I am not sure you are discussing what we (the threadstarter, me and other members) are discussing.
Nobody here is discussing the merits of ICP as used for PPP comparisons or the demerits of such a comparison. That maybe a topic for another discussion.
Maybe read the report and methodology analysis?
Things like market capitalisation, realised equity valuation and net savings (rather than gross savings I quoted, as with some countries like Indonesia, there is somewhat a marked difference) all play a role.
Net savings and
gross savings are merely separated by depreciation.
Why would capital/assets depreciate to a much greater extent in Indonesia than India over a period of 5 decades, so much so that India would be wealthier per adult than Indonesia - despite Indonesia's sustained lead over India in GDP and GNI per capita indices for the same 5 decades?
During the same period, Indonesia would also continue to enjoy higher savings rate (as a % of GDP), higher savings per capita and higher GDP per capita than Indonesia?
Market capitalization?
As I have explained before using the US as a reference, market cap is inherently volatile and subject to fluctuations. Financial assets may also not be liquid enough in many cases to mean much in times of crises.
All in all, there is no reason why Indonesia should have a lower wealth per adult than India under any circumstance - considering Indonesia's sustained lead in GDP per capita over 5 decades, higher savings rate, higher savings per capita while India has hosted the highest number of hungry, famished, malnourished, illiterate, dirty, sanitation-deficient individuals on the face of this Earth for many decades now, if not for centuries perhaps.
Likewise, there is no reason why Hong Kong with its notoriously high consumption per capita should have more wealth per capita than Singapore with its notoriously low consumption per capita and high savings per capita and high savings as a percentage of GDP.
Similarly, Taiwan should not be "almost" as wealthy per capita as Singapore given that Singapore has been richer per capita than Taiwan for many decades (for as long as international stats for both regions are available) now and also has had a higher savings rate as a % of GDP and a higher per capita savings than Taiwan.
There are many other glaring errors in that report, which was merely the handiwork of a handful of workers at an investment bank. No reason to believe investment banks or financial institutions that cause such financial crises as in 1997 or 2008 need to be trusted blindly as the sole arbiter of truth despite the plethora of evidence against their claims.
Again, you can read the report....and maybe come back with some specifics as to what is faulty?
Explained above in great detail.
The only thing hilarious is the paucity of actual sustenance in your post and the ill-thought assertions you make on top.
I hope you would not be offended or take it as a personal slight though...
Many people may find it hilarious that you find those features in my post when others don't, and for good reasons, and that you manage to find your pet theory not so hilarious, yet.
No that's not what I said. I said if forex pressure on an economy is minimal to its imputed total real size (as PPP tries to estimate better, and can be approximated estimated to the previous years before it was established), its extrapolation to the entirety (i.e current USD nominal) is very flawed.
Your
pet theory is getting increasingly convoluted. This is what you had said earlier.
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
PPP estimates are dependent on surveys.
Surveys, by default, produce different results almost every time. It would be a rare event for a survey to reproduce the same result more than once.
As a result, the ICP surveys carried out in 2011 and in 2017 produce different results.
Based on ICP 2011, Chinese economy surpassed the US economy in
2014.
Based on ICP 2017, the same Chinese economy surpassed the US economy in
2017.
No one can trade in the forex market using goods or services at Purchasing Power Parity rates. For quite obvious reasons.
No one can also import or export goods/services at Purchasing Power Parity rates.
These PPP rates are decided based on surveys and should not be taken as definitive indicators of economic strength, vitality or dynamism.
Forex pressure on Pakistani economy, much like Indian economy or that of many other developing economies, would not be huge if compared to their GDP based on PPP method.
However, when creditors come knocking for payments, these economies often need bailouts. Pakistan has needed such bailouts multiple times. India needed it in 1991 in the aftermath of its protector/benefactor USSR's demise.
It was the very reason why India's per capita GDP (when converted to USD) was higher than China's during the cold war, even though China had 2 -3 times the energy consumption per capita (And far better pace of demographic transition)...among other consumption norms being clearly higher. China just barely traded (esp with USD) past its barter system with other communist countries. No sustained US liquidity means no sustained permeation and accurate valuation of its true GDP was available by use of a simple exchange rate that governed a tiny fraction of its economic activity.
India simply traded more with the world relative to its GDP with the world than China did and got a bump from that (as little as it was in India's case too, though higher)....., this has drastically reversed now (and largely also why India's PPP multiplier is larger than China's for example since China has far more USD saturation in its economy).
The same trend though applies w.r.t India and Pakistan when talking about the cold war era numbers and the post cold war era transition and more recent decades.
Again an actual read of Mr. Haq's paper(s) (on which so much of this side of developmental economics is based) would do you good rather than asserting something which I never said at all.
Lots of fluff and little of substance.
Essentially, it's the same old pet theory of yours:
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
As I have discussed above, evidence to support your theory is lacking.
Well you gathered wrong.
Here's a starting point for you to consider and research and read up on the underlying theory and sources (if you do not want to read up the the earlier Haq papers):
I was going to discuss the ICP and its updated PPP estimates for different countries as published in 2017.
Still, you have not clarified what PPP estimated published by world bank have to do with your pet theory
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
PS If we go by ICP 2017 surveys, the Chinese economy only surpassed the US economy in 2017 as opposed to 2014 as estimated in ICP 2011 surveys.
You should clarify what your pet theory
actually means since you have flat out rejected my understanding of your pet theory.
A) GDP calculations (when converting into USD) were notoriously flawed for low-trade developing world in the cold war.
If say less than 3% of GDP was forex-exposed, extrapolating it 1:1 (via exchange rate based on the 3% exposure) with the rest of the 97% was deeply flawed.
Countries politically closer oriented to the issuer of the USD similarly got a relative bump since their forex-exposure % of GDP was higher from that.
