Difference of gdp of different countries
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So just to emphasize your point, " the base prices of goods and services are not the same" -- what makes this exercise difficult is that goods and services in any country are priced in the currency of that country. The currency exchange rate between counties fluctuates constantly. So just using existing market exchange rates to, say, convert all GDP numbers into US $ or into euros, is dependent on what the exchange rate is at the time of the calculation.
Further, a country's actual exchange rate may not accurately reflect market value, as some countries (India, China) continually intervene in the forex market to maintain a relatively weak currency relative to the US, which keeps their export prices down in $ terms (and makes imports from the US relatively expensive).
So that's why the Purchasing power parity index was developed, to take a fixed basket of goods, price them in that country's currency, and use the resulting values to create relative price indices. These are again point-in-time calculations, but, except where there is runaway inflation, they are approximately correct for relatively long periods of time.
It's the combination of foreign currency exchange and international trade that makes your point about one country just having "high prices" moot. High prices for goods that are available in other countries means there's an arbitrage opportunity -- someone could buy those overseas and import them, selling them at a lower price than the prevailing one, thus driving the price down. So it's not really possible to have persistently overpriced tradeable goods in any one country (as long as there aren't trade barriers, and net of tariffs and the like).
It's still not perfect -- some goods and services are non-tradeables, and so they can be priced arbitrarily far international trade levels. And it may be that the fixed basket does not well represent actual production or consumption in the target country. But it's still better than using the spot forex market as your exchange rate value.
Further, a country's actual exchange rate may not accurately reflect market value, as some countries (India, China) continually intervene in the forex market to maintain a relatively weak currency relative to the US, which keeps their export prices down in $ terms (and makes imports from the US relatively expensive).
So that's why the Purchasing power parity index was developed, to take a fixed basket of goods, price them in that country's currency, and use the resulting values to create relative price indices. These are again point-in-time calculations, but, except where there is runaway inflation, they are approximately correct for relatively long periods of time.
It's the combination of foreign currency exchange and international trade that makes your point about one country just having "high prices" moot. High prices for goods that are available in other countries means there's an arbitrage opportunity -- someone could buy those overseas and import them, selling them at a lower price than the prevailing one, thus driving the price down. So it's not really possible to have persistently overpriced tradeable goods in any one country (as long as there aren't trade barriers, and net of tariffs and the like).
It's still not perfect -- some goods and services are non-tradeables, and so they can be priced arbitrarily far international trade levels. And it may be that the fixed basket does not well represent actual production or consumption in the target country. But it's still better than using the spot forex market as your exchange rate value.
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