This is especially true if you’re comparing a high-income economy like the United States with a middle-income nation like China or, even more so, with a low-income country like India. In such a world, countries would have to be competitive in the production of traded goods, so their wage rates in dollars would reflect their productivity in tradable goods (like the airplanes), not nontradable goods (like the haircuts). Such countries have high wages, but these wages are reflected in higher prices for nontradables and hence in an overall higher price level than in poorer countries. I won’t try to do a rigorous or comprehensive test, just provide an illustrative figure with a few important economies. Here’s the price level in several countries, as measured by the ratio of dollar G.D.P.

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Persons: Samuelson, Bela Balassa, Paul Samuelson Locations: United States, China, India, nontradables