The international comparison programme (ICP) and use of purchasing power parities (PPP)

--Sslji@

United Nations Econmlc Commlsslo~

vQ

^AfrleMI

lor Africa Staktlcal Association

JOINT IAOSIAFSA CONFERENCE

Addis Ababa, 22-24 May 1995

M'naglng Development In the

1990s

and Beyond New Trends In StatIstIcs

INVITED SESSION

4:

DATA FOR DIVERSE AREAS; THE GEOGRAPHIC DIMENSION IN DATA

THE INTERNATIONAL COMPARISON PROGRAMME (ICP) AND USE OF PURCHASING POWER PARITIES (PPP)

Osborne JACKSON UNITED NATIONS Statistical Division

ADDIS ABABA

MAY 1995

(paptr presemed at the Joint

C a

of tht Internatid

h i a t i o n

for Offic'i

statistics a d thg African Statistical Associarim, 22-24 May 1995, Addii Ahaba)

1 Over the years, National Accounts aggregates have pkytd

an

role in measuring me, out-put of countries and also tn -c of rbe bmational acommies. Thtsz cornparisam ate by converting tbc National Acrourds aggregates valued ia Natioarl Cur&, to a common unit through the use of an official eJrchaqgc mfe. CompafisolrJ of the

a g g r e g a t e s & r i n d b y ~ s m e f h o d h a v e i n h c r r n t w e a k w s # r e ~ ~ ~ ~ ~ f e s d o m t m r v ~ ~ movements in relative prices. As most of you my be

awsn

of, until ncently, sevaal Adritan

cou&es kept their exchange rates m f ~ i a l l y fvced for tong pawds. It is only

m

the pnst ten years or sa when several Alticau c;nuunes carned out cconomv s~uclural a d m t ptogranrmcs at the ~nstanse of the International Morretary

Fund

(IMF) and th W i l d Bauk Wt these couWias exchange rates have mmmi

as

relative prices have chmgd. Using

the

dollar for

tbe conversion

_of National Accounts aglZrcgsrJ

haa

boca alright

arr

low aa _the cagtCies

exc~ratcwssfahrlystable. W ~ m t s u d d m , a n d s o m e t i m e s c o n a i P u ~ ~ ~ , ~ ~ c h m g c s ~ i a r e d w r h s c m a l c ~ s t r u c n u p l a d ~ g r o ~ r a m m c s i t h a s ~ c o m m r m

10 obsme bntiarities in these Natiwral Accounts aggngatea.

2.

In

copkame of rlus deliciency, the Statisfical Commmm

.

^. _of

the United Nations in 1965 mammcndcd a sndy of the

pndiccs uscd

in

loteroarional comperisons

with ^a view ^to fORWlathg specific proposals

m

relation to

ttus.

SutsapUly, through tbe W c m r h a l CompuIson Rogramsne, the use of Rvchaeiag Powa P a & h was adopted as a krip Bor

m q d n g the real pmduct of mm@ies. The purpose of this method is to enable htemahd conprrisom of real ^ouf-put without the inatferma of diffemrrs in antional

price

levels ^mt

tlucmtbm.

This memoQ it is now nrogaiaed. pmvldes a U basis ibr carprPoing

thc

relative ^size of the econw;ries and their staadatd of _living than tht aesreg- derived using I& exchange rate mctho8,

4.

In

very general terms, an ICP c o m p k t l prices a basks of goods and at tke same international price for each item irrespective of ^COUUWY.

S i

scrviccs

arr:

U S U ~ Y much ^cheaper

in

developing countries,

Gross

Domestic Product (GDP) data converted

by PlTs

wnd ^{to bc} higher than those converted

using

exchanp;e

rates

for most developing counbries.

ThescvatuesmaybebigbabyfactorsasrmrchaSthree. DcvtlopdcountrydatawbgPPPs

.

also differ fmm those _using exchange rates but the diffiercnx b usually less.

f f

5 . The global ICP programme is orgakd on a regions), bas'i. CUrrmtty there are fout active regional Eanparisons: a JZumsWOECD piar prognmmv for OECD camtrka. a Oroup I1 c o m p a r b m f w ~ E u r o p e a n d t h e f o r m r r S o v i c t U n i o n ~ , _admmmmd

.

^. _by

_{E u m ,}

a c d t i n g fiim of EurostPt,

and an

A o i

and anAfiicanampa&on

P a c ' i comparir;on basal at the ESCAP regional cammispion. For the latest 1993 Eoasparison, Latin America olrd

the

Caribbean are

nor

yet represented.

6. The ICP surveys need -rces that may be beyond the capability of many dcurl&q

w.

ICP nxds GDP expeadinut data classified into 1% or mcrre basic headings .ad

~ ~ a v e r a g u ~ o f 5 0 0 t o l O O a c l o s d y s p e c i t i e C i i t e m a r o f f i r n l ~ c l a a s i t i c d i n P o t b c s e ~ ~ . T h e i t e m a ~ m u r t k ~ l e a c r o c l s c c n m t d c r t r P d at t& same time be a r c p d v e satnpk of thc canWy colremcd. The prices arc to bc wBccted in various urban and nuPl ce- _pwfcmbly through

thc

year to pcmrit c~mpae- of ^nrtional d averages.

9. A cornparison in Africa, with 22 participating countries, has been m@id ^{by %'C+SW} and its consulting firm Eurocost. Twenty ^countries of took pan in the previdus rmmd of the comparison. The regional meeting held in Novrmber 1993 finalkt all the nectsssry documemation and adopted the timetable. Price data wllstion is now

in

prognss, howwcr. the start and duration of surveys vary in each country. Data repomng, iochLding the detailed

GDP

-,expenditures will bt compIeted by mid-1995. It is hoped that a meeting be organizfft in

.September ¹⁹⁹⁵ todiscusstbedraft~tsandthcreportof t h c c o r n p r r r i s o n d k a ~ i l a ~ e i n 1996.

In

the data p-ing a new

sofrware,

&vetoped by Eurocost is beimg used. f h ~ a ? @ wiU contioue w work on a future version of the software to make it applible in other regkn#.

10. Them is a grow* interest _in the data derived from the PCP among Mmn&ml Organizations such as the International

Mon- Fund 0, the United

Nations

D e -

proBramme

(WNDP),

United States Agency tor Inhcrnationol Development (USALD), tfie arganizarion far Econamic Coopemtiom and Dcy~iopmcnt

(OECD),

the Euopcrn Union

(EU)

as well as the World Bank. These organizatiolls use the

PPP

indices in d i m ; ways, for

(i) m e r u ~ ~ l r

dr dative

size _of

aatioas

(IMP, OECD);

(ii) develop indicam of developmnt

(UNDP);

(iii) design aid program (USAID,

EU);

and

Civ) mcaure levels of ^poveFty (World Bank).

1. While a c o w has been developed among these o ~ t i o a s

that

it is

csscrrr

16. TunnS in ihe regular prkc wliecnon exercise M y coincide with saw of the i- in the ICP. By gradually briagiog m some of the items into the ICP programm nad f a a

separate price colleai~n may be reduced. W ~ X Z it is not possible to

inctudc

some of the ICP itcmsinarcgularppricewllection, ~ t ~ s b e i a g s u g g e s C e d f a f u r t b e r s a d y m a t i r r m y b e ~

-

^p~ obtain adjustmmt factors to adjust the regular price items to tbase of t l ~ desip3 ICP items.

f

17. Activities in ICP use

resomes both

at

t h

coumry level as well

as

the ~ t i o l l p l level.

Recause

^of the scarcity of rcsourr;a, eqech&y in developing ~ g k m ~ , rherr is a la of d e p c n d e n c e a n ~ i d p a s s i s r a n C e a a d c o O r d ~ m t o e & a d r w o d r ~ t P t c d ~ t h c p r o j r c t . hr that-, i t i s s u g S e e a d t h a t w b e r e ~ s a u r o e s a r e k ~ , ~ ~ s h a u l d a d o p t t & u a c o f the 'Rduoed sfalc of surveys' methad to carry out future IcP work.

Ahmad, Sultan: Approachas to Purchasing Power Parity ^and Reai Product Conpu-km U S ~ short Cuts and Reduced Information, World Bank Staff Working Paper

No.

418 (1980),

a .f

Ahmad. Sultan: "lntmmtional Ral income compatia~rm with reduced infonnadm* in 3, Salrvar-Carillo

aad D.S.

Prasula

Rao

_(ed.). Wmid

Comparison of Incomes.

^Prices and Product

(Amsterdam,

North

Holland, 1988).

I n t a m i d Mooaary Funl; World Ecommic Ourlook: A

Survey

by the Staff of the

IMP

(Washington: IMF, May 1993).

Kravis, Irving

B. ant Others, A System

of Intrrnarional Comparbm

of

Gross hoduct and purchasing

Power (Baltimore:

John Hopkins University

h.

1V53.

Kravis, Irving

B.,

A h

W.

Haton and

Robert

Summers (19781, Internatid Co-

of Red Product and

Purchasing; Power

O)altimon: J o b Hopkins Univwsity Press, 1978).

U n i a

NNations: Handbook

of

thc

Inbernatiwat ^Chquism Propaum~, Series

F. No.

62.

SRICS

No.

E.92.XW.12 (1992).

United Nations rtnd Commission of

tbe

European

Communities:

World Chqmiwm

of Rcsl

G r w s ~ P t o d u n a n d P u r c h s s ~ s g P o w t r , 198% WCSNO. E . 9 4 . m . 7 .

World B a d .

World Devckqmem Report 1993, Tabk 30 "Income Distsibudon and

PPP Estimates

of

GDP" (Washington:

Oxford University Press. 1993).

0.3. 11 May 1995

--. -.-~..--.-- , ~ ~ - - . ^~~

E ' U

- ^-

- ¹ z I f 1 PV :I

-

':cuntrvf area ^, - 7 ~ " ^qe.7 1973 1915 1980 lBd5

Zurogean and D Z t 3 comparzscr-, 2 3 9 0

Per capita GDP

us -

^{t OO}

100 0 91 6 89 7 89.5 S4.7 8 9 3 rn.8 79.6

re.

¹

'77.6

?&ti '16.8 76. I 75.8 74.6 74.2 73.9 T3.I 63.2

54.6 49.4 49.7 3s.n 34.1 3.1.6 39~1

13.0 23.4 31.3 i 3.8

S ¶ K p & @ : 0-omgacainr of P K O S S D ~ Product c

in

(United Nations and ECE!

-

. . .

-

. . .

N i i . . .