International comparisons

To gauge our nation's economic performance, we often compare Canada's economy with that of the United States, despite the obvious difference in size. Though international comparisons are often difficult to make, one useful measure is buying power—how much we get for our respective dollars. Though the exchange rate seems an obvious measuring stick, it does not always indicate real price differences between countries. Purchasing power parity (PPP) is a more accurate measure.

PPPs are conversion rates based on the real purchasing power of currencies—as opposed to the international market price of the currencies. Based on a basket of goods and services, the Canadian dollar in 2002, in comparison with the US dollar, had a PPP value of US$0.85, compared with its exchange rate of US$0.646. In other words, the Canadian dollar had a purchasing power value about 30% higher than the quoted exchange rate.

This approach can also be used to compare GDP per capita figures among different countries. In 2001, based on PPPs in Canadian dollars, the Canadian GDP was $35,597 per capita, compared with $43,725 for the United States, $31,892 for Japan, $31,407 for Germany and $31,873 for the United Kingdom.