the economist global city competitiveness index

Geoarbitrage is based on the same concept as arbitrage, but it focuses on the disparities in labor costs between countries, noting how exploiting these disparities will deliver a greater return on your time. Our regular readers might be familiar with the concept of geoarbitrage, a topic Andrew has written extensively on. This follows from the assumption upon which the law of one price is based – any variations in pricing that exist between two separate locations will inevitably be eradicated once enough participants in the market begin to exploit arbitrage opportunities that exist. In theory, however, even when prices are not currently the same across borders, over time they should move towards the same price. Therefore, it seems that this may generally be true for commodities such as gold, but it doesn’t always apply to other goods. However, I also know that a pint of beer in Geneva is going to cost me way more than a beer in Warsaw. This seems pretty straightforward since you would expect to pay the same amount for an ounce of gold in Australia as you would in Zambia. The Big Mac Index is an example of how we measure the law of one price, which states that in the absence of any transport costs and trade tariffs and if free competition and price flexibility are present, then identical goods will cost the same price regardless of where you purchase them (once converted into a common currency). The Theory ExplainedĪt its most basic, the Big Mac Index is a way to gauge a currency’s over- or undervaluation using the Law of One Price, Purchase Power Parity, and the cost of the iconic Big Mac.

Since then, the Big Mac Index has been used by the Economist Magazine to determine and track a currency’s over- or undervaluation by comparing the different prices we pay for the iconic Big Mac burger in various countries around the world. Not everyone finds macroeconomics as riveting a subject as we do here at Nomad Capitalist, but thanks to the Economist Magazine’s Big Mac Index, concepts like Purchasing Power Parity (PPP) and the Law of One Price are more interesting and accessible than ever before.ġ986 was an exciting year in the financial and economic world: Microsoft had its initial public offering, the British Government deregulated its markets in what became known as the “Big Bang,” and “Burgernomics” was born.

The economist global city competitiveness index