# International Futures Help System

## GDP at MER and PPP and Relative-price Adjusted GDP

Gross regional or domestic product (GDP) is the sum of value added across sectors, which would also equal the sum of production for final demand across sectors.

The GDP per capita (GDPPC) and the regional economic growth rate (GDPR) follow easily.

The basic GDP figures for the model are represented in dollars at official exchange rate values. It is important, however, to estimate the value of GDP and GDPPC at purchasing power parity levels as well (GDPP and GDPPCP). To do that we need to compute a purchasing power parity conversion value (PPPConV). Data sources provide the initial conversion value. IFs uses an analytic function that relates GDP per capita at MER to that at PPP to compute change in the conversion value over time.

The initial condition for the conversion ratio comes from data values for the GDP per capita at PPP and MER. Over time, the conversion ratio (which can be considerably above 1 for developing countries) erodes. The annual erosion is the difference between the previous year's value and a product of two terms: (1) an initial ratio that controls for any difference between the actual GDP per capita at PPP and the value produced by the function relating it to GDP per capita at MER (this ratio should not normally be very different from 1); (2) the current conversion ratio, which uses the potential GDP per capita (actual GDP per capita having not yet been computed) to feed the analytical function.

*where*

Although the IFs model represents prices in real terms (no monetary sector and inflation), there are relative sectoral price changes and a separate section of the documentation describes the computation of a relative-price adjusted value added (RPA). The sum of those can also produce a relative-price adjusted GDP (GDPRPA). The utility of this variable can be seen, for instance, in countries, like Saudi Arabia, that are heavily dependent on energy exports. Large swings in the relative price of the energy sector can dramatically affect the relative-price adjusted GDP and we therefore carry this variable forward from the goods and services market into the more encompassing social accounting matrix representation.