An Analysis of Purchasing Power Parity and the Affecting Factors

Abstract

This study was conducted through the use of the Turkish Statistical Institute (TUIK) 2012-2014 statistical data. As purchasing power parity (PPP), the rates of items of goods and services in different countries were defined and analyzed. The research was enriched by correlation analysis, Granger causality test and regression analysis through the use of the E-Views 8.0 software. According to the 2014 results, the average of GDP indices for Turkey was determined to be 53 when the average of GDP indices for 28 member countries of the European Union was 100. Besides, actual individual consumption levels were found to be highly related in the same direction, and the GDP indices of the countries were highly related with the price indices in the same direction. In terms of price levels, a strong relation was detected between the indices of individual countries. Causality was found between actual individual consumption and GDP, and between actual individual consumption and GDP price levels. It was determined that a one-unit increase in actual individual consumption increased GDP by 1.10 units, and a one-unit increase in price level index increased GDP by 1.06 units. In general, with an average of 47%, Turkey lags behind the 28 EU member countries. Besides, it has a parallelism with 3 countries of the European Free Trade Association (EFTA), Switzerland, Iceland and Norway and 5 EU candidate countries, Macedonia, Montenegro, Serbia and Albania. On the other hand, Turkey has been in a quite good position in terms of individual purchasing power in 2014 and 2015, compared to Greece, one of the EU member countries. © 2015 AENSI Publisher All rights reserved.