Comparing National Income between Countries

Problems Involved in Comparing National Income between Countries

a) Differences in the definition of NY

A country that includes both goods and services in her calculation of NY will certain register a higher figure than one which only includes goods alone.

Hence, any comparison made would be misleading.

b) Differences in price level

It is important to consider the purchasing power of money in the respective countries concerned.

Thus, real income must be taken into consideration and not money income.

c) Differences in exchange rates

As NY figures are expressed in different currencies, they have to be converted to a universally accepted currency (e.g. US$) if comparsion between countries is to be made.

d) The availability of data

In less developed countries, the collection of statistical data is difficult because of poor accounting records, ignorance of the people and less sophisticated method of statistical compilation.

Hence, data are less reliable and comparison with developed countries will be inaccurate.

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