Purchasing power

About: Purchasing power is a research topic. Over the lifetime, 2714 publications have been published within this topic receiving 36866 citations. The topic is also known as: adjusted for inflation.

The Economics of Price Scissors: Comment

Abstract: In a recent issue of this Review, (1984) Raaj Kumar Sah and Joseph Stiglitz model the impact of shifts in the agriculture-industry terms of trade on industrial accumulation and social welfare.' The intersectoral terms of trade, they note, was a key issue in the Soviet industrialization debate of the 1920's, and continues to be an important issue in contemporary less developed countries. One seemingly surprising implication of the Sah-Stiglitz model is that a shift in the terms of trade against agriculture increases industrial accumulation despite (or rather, because of ) a normal agricultural supply response. In their model, a price-induced decline in marketed agricultural surplus requires depression of industrial wages in order to reequilibrate urban food demand with supply at the lower relative food price. The income and substitution effects of these wage and price changes lower urban consumption demand for industrial goods. Together with agriculture's reduced purchasing power, this lower urban demand leads to the price scissors-induced increase in investable surplus out of industrial production. Thus emerges the strong Sah-Stiglitz result, which they label "Preobrazhensky's First Proposition," that the more elastic is agricultural supply response, the more wages must be depressed in equilibrium, and the more effectively plice scissors work to increase accumulation (see their equation (15)). Apparently, the traditional preoccupation with agricultural supply response, including Preobrazhensky's,2 is wrong-headed and backwards. But it is argued here that this result obtains only under rather special labor supply and investable surplus assumptions which conform to neither the constraints of the Soviet industrialization debate, nor to most contemporary less developed countries.3

Economic Impacts of Immigration

Abstract: In a study of the relationship between immigration and economic conditions in the receiving country, the aspect now under discussion is the one that properly constitutes the economic problem. Strictly speaking, it can be reduced, from the economic point of view, to the more general problem of the introduction of new arrivals having at their disposal a specific purchasing power, within a given economic circuit. Besides, this problem is more easily approached by economic analysis construction of a theoretical model based on a certain number of simplifying hypotheses which can be discarded one after another in an effort to take into account the complexity of the real situation. But before beginning an examination of the impacts of immigration upon the mechanism, viz., upon the structure, of the economic system we shall briefly examine its impacts upon its dynamics.

China's Consumer Revolution

Abstract: China’s rapid economic growth has attracted much international attention in recent years, partly due to the potential purchasing power of the largest population in the world. This timely book examines general patterns of Chinese household demand for a variety of consumer goods such as food, durables, housing and health care and investigates the impact of economic and social factors on household consumption.

The Calculation of Rural Urban Food Price Differentials from Unit Values in Household Expenditure Surveys: A new procedure and comparison with existing methods 1

Abstract: While national and international statistical agencies spend much resource on calculating purchasing power parity (PPP) between countries, relatively little attention is given to PPP calculations within countries. Yet, for large and heterogeneous countries, such as the US and India, intra country PPP is as important as cross-country PPP. This is particularly true of the rural urban divide in such countries where the idea that one unit of currency has the same purchasing power in both sectors is clearly false. This paper addresses this limitation by proposing a demand system based methodology for calculating rural urban PPP that incorporates rural urban differences in preferences and applies it to India. The methodology is compared with conventional procedures, such as the Laspeyre’s price index and the CPD model, and shown to have several advantages over them. The result on significant rural urban price difference in India underlines the need to extend the crosscountry PPP calculations to incorporate spatial differences in large, heterogeneous countries with a diverse set of preferences and prices.

The Internet and Financial Market Structure

Abstract: Financial markets provide for trade in information because money is just a means of scorekeeping, a way of tallying the relative purchasing power of individuals and organizations. It can be a physical tally such as a coin made from rare metals or a paper claim on a government or other reputable agent that is difficult to counterfeit. But records of relative purchasing power also can be stored digitally as strings of ones and zeros if the storage medium is secure. Information generally is costly to produce but not to reproduce. In fact, information is perhaps too easy to reproduce once it is revealed, it is difficult to exclude others from further use of information. When the value of information mainly is strategic, as often is the case in financial markets, information producers have incentive to protect their investment by holding their cards close to the vest. But doing so obstructs trade and undermines the social interest in informationally efficient markets. Financial intermediaries promote trade in financial markets by balancing the tension between self interest and collective interests in information. Financial intermediaries endure a similar tension in their dealings w ith one another. Competition among intermediaries traditionally was fueled by the human capital of key families and individuals Morgan, Rothschild, Goldman, etc. whose names still dominate the financial landscape. Primitive information technology led early financial intermediaries to form information networks by scattering human repositories for information as widely as possible. 1 Fair dealing over time within the network led to strong relationships bound by trust through which information moved about more freely than it would have otherwise. Reputations and relationships, the foundations for trust, likewise are composites of information but information that is not so easily disembodied from its originator you can't buy a reputation. Innovation flourished in the context of close relationships and powerful intermediaries that tempered competition and thereby protected easily copied ideas and products assuring at least a fair return on investment. The internet upsets this delicate balance. We may look back on the internet as having punctuated the evolution of financial market, but its effect will most likely be interpreted as different in degree not in kind from the effects of motorized transportation, the telegraph and telephone, low-cost computers, etc. The internet is just another technological advance along a path where human capital is being transformed and in some instances displaced by information technology that codifies what previously was embodied in human intermediaries. The tension between human capital and information technology, however, has profound consequences for the organization and management of intermediary firms. The small family partnerships that dominated early financial markets provided an environment in which human capital was nurtured and passed from one generation to the next. By contrast, the modern financial firm depends far more on financial capital to support the large-scale but low margin operations that remain when intermediary functions are codified.