Are Purchasing Power Parity Exchange Rates Misleading in Oil-Rich Gulf Countries?

• Author(s): Miriam Al Lily • Published: September 2023
• Pages in paper: 8


This article examines the accuracy of purchasing power parity (PPP) rates in Saudi Arabia. It highlights concerns about the perceived wealth of Saudi citizens based on interviews with American expatriates and wage statistics. It discusses the limitations of the Saudi International Comparison Program (ICP) data, including variations in data quality, differences in product selection, limited coverage and the assumption of uniform consumption patterns. It analyses the divergence between Saudi Arabia’s PPP rates and the fixed market exchange rate and examines the relationship between Saudi Arabia’s PPP rates and oil prices, revealing the paradoxical decline in living standards during periods of high oil prices. In conclusion, the PPP exchange rates for Saudi Arabia appear to fail to accurately assess living standards in Saudi Arabia.

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