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Burgernomics

The cost of a Big Mac burger in US and Britain. The graphic shows the difference in price taking into account the exchange rate. In the last few years the British pound is under evaluated, with respect to the Big Mac currency parity. Image credit: The Economist

The McDonald’s burger can be found in some 120 countries around the world, employing some 1.7 million people serving over 70 million customers (if you want to know the Countries that NOT have a McDonald’s click here).

It is so ubiquitous that some companies and organisations are using the BigMac price as a beacon to compare the cost of living in a given Country and correlates the subsistence money paid to their employees when traveling to the relative price of the BigMac. The BigMac price is higher in New York than in La Paz Bolivia? Your travel expense budget is scaled up accordingly.  This is the Burgernomics.

However, the actual price of the BigMac you experience when travelling abroad depends on the currency exchange rate. Now, if you assume that the price of a BigMac should be the same everywhere (since it the goods you are consuming is exactly the same -in economy if there are no external friction, given the same good you should have to pay the same price. It actually never happens but it is a good theoretical statement) then if it turns out that it is not the case it means that your currency exchange rate is either under or over evaluated.

Basically every year the Economist looks at the BigMac price worldwide and comes up with a report showing the differences in currency exchange rates, taken the BigMac price in the US as baseline.

It is not just a funny way of looking at the economy, over time it provides some insight on the average wellbeing  in a Country. It can also serve to stimulate some sociological considerations, like the BigMac seen as a planB in Southern European Countries (where most people, including youngsters prefer to have something different) or seen as an extravagant luxury in Colombia (where there are cheaper options everywhere).

This year the Economist’s BigMac Index is available here. You can move your mouse (or finger) on the graphic to see the position of your Country. You will notice that this year only 5 Countries (Switzerland top of the list with a 30%+, Norway, Uruguay, Sweden and Canada) have an over-evaluated currency, all the others are under-evaluated (Costa Rica being the one with the greatest under-evaluation -24.1%).

As we move to the cyberspace the different cost of “bits” tend to fade away (although there may be enforced price differences, but these are usually due to the taxes locally imposed). The Digital Transformation by shifting value from products to services and moving services in the cyberspace is a force in equalising markets.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the New Initiative Committee and co-chairs the Digital Reality Initiative. He is a member of the IEEE in 2050 Ad Hoc Committee. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.

2 comments

  1. Thanks for sharing Roberto! The Big Mac Index is always a fascinating index. But also a critic point, the Bic Mac has for different cultures a different meaning. While it is typical fast food in the US, in other regions, it is an exotic alternative to local (much cheaper) fast food.

    • Indeed! In Colombia I remember my surprise at seeing the Big Mac so expensive, compared to local food. And, of course, the type of customers you see in Colombia is more upscale than the one you see in the US….