Transcript What are PPPs?

Poverty Board Meeting, Washington DC
March 2nd, 2010
Part I
Introduction and
Background
2
The International Comparison Program
• A worldwide statistical initiative to collect
What is the ICP?
Overall
Objectives
comparative price data and estimate purchasing
power parities (PPPs) of the world’s economies.
• Provide international price and volume
comparisons of Gross Domestic Product (GDP)
and its component expenditures.
• Measure the differences in price and volume levels
of GDP expenditures:
• between countries within a region, and
• between countries in different regions.
3
Historical Global ICP Participation
200
186 ?
180
Africa
52
Asia
23
Pacific
5?
LAC
33
140
120
100
80
60
40
20
Number of countries participating
160
146
117
60
64
34
10
West. Asia 14
30
16
CIS
11
OECDEurostat
48
0
1970
1973
1975
1980
1985
1990
1993
2005
2011
Number of Countries Participating
China
11 cities in 2005
Whole country in 2011
4
UNSC
ICP
Governance
Structure
Executive Board
World Bank
Global Office:
Global Manager
+
Staff
Regional
Advisory
Boards
TAG
OECD-EUROSTAT
OECD
E/STAT
AfDB
ADB
CIS
ECLAC
ESCWA
Countries
5
Preliminary Global & Regional Budgets
(000’ USD)
Global
10 260
Africa (1)
44 734
Asia - Pacific
3 200
CIS
12 310
LAC
4 683
W. Asia
2 163
Total
77 350
(1): A large part is for capacity
building and technical assistance
6
What did we learn from 2005?
Detailed
Evaluation of ICP
2005
 Conducted by Norway
 All countries and regional coordinating agencies were
surveyed
 ICP 2005 in general was announced as a huge success
by the evaluation and the UNSC's 39th session in 2008
And…
 We learned about the effective governance structure &
principles
 In 2005, the roles of the various players were better
defined than in any previous round
 Several methodological aspects were improved
7
2005 Effective Governance Structure & Principles
 Framework
Governance
 Partnership w/ OECD-EUROSTAT
 Other Partnership Arrangements
 Agreements
 Country Participation
Agreed Principles
Strategy
 Mutual trust
 Coordination mechanisms
 Transparency
 Pursuit of quality
 Regular communication
 Objectives
 Work plan
 Agreed timetable
8
In 2005, the Roles of ICP Players Were Better
Defined than in any Previous Round
Roles &
Responsibilities
Coordination Levels
Decision Making
Levels
 Policy: UNSC; EB
 EB members: institutions not individuals
 World Bank: Host institution
 Technical: TAG; GO; OECD/EUROSTAT
 Regional coordinators
 Participating countries
 Global Coordination
 OECD-EUROSTAT program
 Regional Coordination
 Country Coordination
 UNSC
 Executive Board
 Increased authority of Global Manager on decisions
about methodology
9
Part II
The ICP 2011 Round
1.
2.
3.
4.
5.
6.
7.
8.
Leveraging on the 2005 Round
Areas of Emphasis and Methodological Improvements
Objectives and Strategies
The PPP Calculation Process
ICP Research Agenda
Using PPPs in the Bank
Poverty PPPs
ICP 2011 Timetable
10
How will 2011 Round differ from 2005 Round?
1. The 2011 benchmark is closer to the previous one than was the case
between the 2005 and the 1993
2. The larger the number of countries the better the global results
3. Most Latin America and Caribbean countries were not included in the
previous surveys
4. Four additional countries will participate in Africa [Algeria; Libya; Eritrea;
Seychelles]
5. China will collect prices nationwide instead of 11 cities [as in 2005]
6. Size and structure of economies have changed, mostly due to global
financial and food crises
11
ICP 2005 Assets which the New Round
will Build on
• Human resources
Main resources
developed in
2005
• Methodological resources
• Data validation methods
• Statistical standards
• Regional lists of products
• Survey frameworks
• National workshops
Participatory
Approach:
Result-Oriented
Workshops
• Regional workshops with countries for capacity
building and data review
• Global workshops with regions for method
harmonization and data review
12
Objectives and Strategies for 2011 Round
Objectives
 Implement UNSC Recommendations
 Meet Users’ Needs and reach out to Users
 Meet Global Demand for PPP-adjusted Statistics
Main results
 PPP results at regional level for 2011
 PPP results at global level for 2011
 Poverty PPPs
 Improved GDP expenditures statistics
Other results
 Improved methodologies
 Learning material and ICP book
 ICP Data Quality Framework
 ICP software suite
 ICP databases and metadata repositories
13
Quality
Framework
Data &
Metadata
Process
Develop Core
Items List
Develop New
Method
`
Improve
Implementatio
n Tools
Use Existing
Methods
Main Program Areas
1. Consumption price survey
2. Compensation of employees
3. Public health services
4. Private health services
5. Pharmaceutical products
6. Public education services
7. Private education
8. Housing
9. Equipment
10. Construction
11. GDP Expenditures
14
Areas of Emphasis
1. A comprehensive outreach strategy
2. An ICP quality assurance framework
3. A statistical capacity building strategy
4. An ICP Book titled “Measuring the Size of the World Economy”
5. A National Accounts framework for ICP
6. A system of economic validation of price and expenditure data
7. A new method to compute global PPPs
8. Continuous improvements in ICP methodologies
15
Methodological Improvements for 2011
Most Robust
Linking Method
 A 600-item Global Core List for household consumption,
equi-representative of all the regions
 Global core list for household consumption included in
regional lists
 All countries in the world price the global core list items
 Equipment list equally representative across the regions
and OECD-Eurostat countries
Improved Quality
of National
Accounts &
Prices
 New National Accounts framework
 Improved GDP expenditures
 Field prices expected to be more consistent with nationalaccounts-embedded prices
 A comprehensive quality assurance framework being
finalized
Improvements in
other areas
 Improved methods for health and education
 A new method being designed for construction
 A 10-topic research agenda being pursued
16
Improved ICP Survey Frameworks
Survey frameworks will be designed to generate average prices by category of
outlets as well as urban and rural area
Urban/
Capital
city
Outlet Categories
1
2
3
4
5
6
7
8
9
Urban/
Regional
cities
Rural
Areas
Supermarkets, hypermarkets, and department stores
Minimarkets, kiosks, neighborhood shops, and grocery stores
Markets (Open markets, covered markets, and wet markets)
Mobile shops and street vendors
Discount shops
Specialised shops
Private service providers
Public or semi-public service providers
Internet and catalogue orders
Price Type
R Regular Price
S Sale Price
B Bargained Price
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What are PPPs?
PPPs Vs
Exchange Rates
 Using PPPs instead of market exchange rates makes it
possible to compare the output of economies and the
welfare of their inhabitants in real terms.
 Number of units of a country’s currency that have the
PPP Definition
PPPs Allow
Comparisons
same purchasing power in the country as one unit of
the base currency has in the base country.
 It is in essence average of ratios of prices of
comparable items, using GDP expenditure weights
where appropriate.
 Real comparisons of GDP between countries free of
price differences.
 Comparisons of price levels across countries and
groups of products.
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How PPPs are calculated?
5 ICP
Regions
Country 1 … Country n
Country 1 … Country n
Country 1 … Country n
Price Country
…1 Price
… Country n
Surveys
Price Country
…Surveys
Price
1 … Country n
Region 5
Region 4
Region 3
National
… National
Surveys
Price
…Surveys
Price
Accounts
National
…Accounts
National
Surveys
Price
…Surveys
Price
Accounts
National
…Accounts
National
Surveys
Surveys
Accounts
National
…Accounts
National
Accounts
National
…Accounts
National
Accounts
Accounts
GDP
PPPs
ExpendiGDP
PPPs
tures
ExpendiGDP
tures
ExpendiGDP
GDP
tures
ExpendiExpenditures
tures
Surveys
Price
OECDEurostat
SURVEY TYPES:
•Household Consumption
•Health
•Education
•Government Occupations
•Equipment
•Construction
…Surveys
Price
PPPs
Region 2
PPPs
Region 1
PPPs
Country 1
… Country n
OECD
Eurostat
Price
Surveys
… Price
Surveys
PPPs
National
Accounts
… National
Accounts
WORLD
Global
PPPs
PPP
Adjusted
GDPs
GDP
Expenditures
19
How PPPs are calculated?
 Countries are compared first within a region & then linked to produce globally
consistent results
 There are six regions in the world. They are linked by the “Core List” method
whereby, in addition to their regional list, all the countries are requested to price the








same Global core items
GDP is divided into 155 or more “Basic Headings”
For each basic heading every region chooses a sample of items. The items must be
comparable & at the same time representative of expenditures of at least 2 countries
A regional list of items is agreed upon in round table negotiations.
Countries conduct price surveys & provide the Regional Coordinator annual average
prices for the base year for as many items as they can from the regional list
They also provide GDP expenditures for the reference year 2011 broken down to 155
basic headings
The Regional Coordinator calculates PPPs in terms of a regional currency
The Global Office computes linking factors based on prices for the Global core list
The Global Office then computes PPPs for the regional currencies in terms of a global
currency, say the US dollar, converts all regional PPPs into this global currency &
publishes the global results
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Flow of Data
Global
PPPS
CORE
PRICES +
REGIONAL
PPPs
ICP Global Office at World Bank
52 Countries
28 Countries
11 Countries
ECLAC
33 Countries
ESCWA
PRICES &
GDP EXP.
CIS
PRICES &
GDP EXP.
ADB
PRICES &
GDP EXP.
48 Countries
AfDB
PRICES &
GDP EXP.
PRICES &
GDP EXP.
OECD
EUROSTAT
PRICES &
GDP EXP.
OECD EUROSTAT
PPPS + CORE
PRICES
14 Countries
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Number of Consumption Items
to be Priced by the Countries
Monthly or quarterly price collections throughout 2011
Category
From
Regional List
From
Global Core
List
01 - Food and non-alcoholic beverages
236
154
02 - Alcoholic beverages and tobacco
03 - Clothing and footwear
04 - Housing and utilities
19
104
18
16
72
19
05 - Furnishing & household equipment
06 - Health
07 - Transportation
08 - Communication
09 - Recreation and Culture
10 - Education
11 - Restaurants
12 - Misc goods and services
Total
82
86
49
16
65
8
31
36
750
68
89
53
15
53
7
33
21
600
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Major Uses of PPPs by International Organizations
 International poverty headcount index (World Bank)
 Comparing relative sizes of economies and estimating weighted averages of
regional growth rates (IMF)
 Allocation of structural and cohesion funds (European Commission)
 Human Development Index (UNDP)
 Gender empowerment measures (UNDP)
 Health inequality assessment (World Health Organization)
 Assessing per capita expenditures in education (U.N. Educational, Scientific and
Cultural Organization)
 Monitoring the welfare of children (U.N. Children’s Fund)
 Designing effective aid programs (International Organizations)
 Analysis of an economy’s comparative advantage on prices and expenditures of
goods or services (Policy Makers)
 Evaluation of investment costs and industry growth potential across countries.
 PPP adjusted cost of living allowances (Multinational Corporations, NonGovernment Organizations, International Development Agencies)
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Uses of PPPs by Researchers
Main uses of ICP data
Types of ICP data
 Poverty analysis – requires average price
data with some disaggregation by region,
by outlet types , and by urban/rural
 Micro data (individual
observations)
 Research to improve ICP methodology,
including
aggregation
methods
–
requires access to more detailed data
 Disaggregated annual average
prices
 Cost comparisons across countries in
areas such as public sector wages,
health, and education, to support policy
analysis
–
requires
disaggregated
average price, quantity, and wage data
and metadata
 Research into the price behavior of
tradable goods and services – requires
average price data
 National annual average prices
 PPPs, PLIs, and expenditure data
for unpublished categories (Basic
Headings being the lowest)
 PPPs, PLIs, and expenditure data
for published analytical categories
 Population and exchange rate data
 Metadata
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Research Topics
10 TOPICS
TAG Recommendations
1
Owner-occupied housing
Approach identified
2
Financial services
Solutions adopted
3
Measurement of government outputs
Ongoing research
4
Survey frameworks
Approach identified
5
Exports and imports and net purchases
abroad
Solutions adopted
6
Linking regional PPPs into global results
Ongoing research
7
Construction PPPs
Ongoing research
8
PPP-based poverty analysis
Ongoing research
9
Back-casting and PPP revisions
Research deferred
10
Sub-national PPPs
Ongoing research
25
Collaboration on Research
 Reaches out to ICP users to ensure that data
collected responds to users’ needs
To improve some
methodological aspects,
the Global Office
 Collaborates with experts from within and
outside the Bank in 6 areas as shown in the
table below:
Six Areas
Inside the Bank
1 Education

Collaboration
Outside the Bank
Human Development
Network Education
(HDNED)

Academy for Education
Development (AED)


UNESCO Institute of
Statistics
Institute for Health Metrics
and Evaluation (IHME)
2 Health

3 Government Occupations

4 Water

5 Energy

Human Development
Network Health (HDNHE)
PREM Public Sector
Governance team
(PRMPS)
Water and Sanitation
Program
Energy Unit
6 Transport by air, by land, and by
sea and inland waterways

Transport Team
26
How are ICP/PPPs used in the Bank & Fund
Poverty
headcount
index
GNI/Capita new
methodology
 PPPs are used to locate the international poverty line by
comparing national poverty lines against GNI per capita
 Convert international poverty line to national currency units
to derive head count ratio
 Lending thresholds are set in terms of Atlas GNI per capita
 Board asked for evaluation of changing to PPP GNI per
capita
 Draft paper indicates relatively small number of changes in
lending eligibility
World Bank
Voice
Discussion
 Proposal under discussion to incorporate PPP GDP with
Quota
Calculation of
Fund
 New quota formula based on four variables
(1) Openness; (2) Variability ; (3) Reserves ; (4) GDP converted
at market exchange rates and PPP rates (weighted 60 - 40)
market-based GDP in calculation of economic weight
27
New Research on Poverty
Estimating Poverty PPPs
$1/day
PPPs are
weighted
averages of
prices
Weights &
Prices
Research:
PPPPs
 $1/day poverty estimates rely on consumption PPPs
 Weights are consumption shares from national accounts
 Prices are obtained from ICP
 Both weights and prices can be wrong for the purpose of
measuring poverty:
Weights don’t represent the consumption of the poor
• The poor may pay different prices (mixed evidence of this)
•
 Calculate PPPs for the poor (PPPPs) :
Weights “at the poverty line” obtained from household surveys
• Still use ICP prices (no “prices for the poor” available)
•
28
Estimating Poverty PPPs
PPPP methodology & estimates by Deaton/Dupriez
Main
conclusion
 Main conclusion: the source of data matters more than the
reweighting
 PPPs calculated using NA weights differ significantly
from PPPs/PPPPs calculated using survey data
 PPPs and PPPPs very similar if we use the same
source of consumption data (surveys) for both
 Future research (under ICP 2011) and work
Research:
PPPPs
 Study the price differentials urban/rural, poor/non poor
 Compare ICP prices with unit values in survey data
 Harmonize methods and data of consumption surveys
29
ICP 2011 Timetable
2010
2011
2012
2013
2014
1. Fund Raising
2. Meetings
3. Capacity Building
4. Quality Assess.
5. Methodologies
6. Survey Prep.
7. Survey Implement.
8. Nat. Accounts
9. Regional Results
10. Global Results
30
More information on the International Comparison
Program can be found on the ICP website:
www.worldbank.org/data/ICP
31
Thanks
32
Extra Slides:
The 2005 Results
33
33
New View of the World Economy
2005 ICP Results
World Share of GDP
World Share GDP
Based on Market Exchange Rates
Based on PPP
Low-income
economies, 7%
Low-income
economies, 2%
Middle-income
economies, 19%
Middle-income
economies, 32%
High-income
economies, 78%
High-income
economies, 61%
34
Disparity Across Economies
2005 ICP Results
70
60
50
40
World Population (%)
30
World GDP (%)
20
10
0
Low
Middle
High
35
What we Learned from 2005:
Largest 12 Includes 5 Developing Countries
12 economies
account for 2/3
of world
expenditures
 Largest economies:
1. United States
2. China
3. Japan
4. Germany
5. India
6. United Kingdom
7. France
8. Russian Federation
9. Italy
10. Brazil
11. Spain
12. Mexico
36
What we Learned from 2005:
Economic Well Being
PPP- Based Actual Individual Consumption per capita, $
30,000
25,000
20,000
15,000
10,000
5,000
0
Eurostat/OECD
CIS
LAC
Western Asia
Asia/Pacific
Africa
37
What we Learned from 2005:
Distribution of Consumption Per Capita
Distribution of consumption per capita, US$
35,000
20,000
5,000
1,000
30,000
25,000
20,000
World
Average
6,096
15,000
10,000
5,000
0
38
What we Learned from 2005:
Economies with the highest & lowest GDP per capita
Richest Economies
(% of world average)
Poorest Economies
(% of world average)
Luxembourg
780
Qatar
765
Ethiopia
6.6
Norway
530
Niger
6.5
Brunei Darussalam
529
Guinea-Bissau
6.3
Kuwait
501
Liberia
4.3
Congo, Dem. Rep.
2.9
39
What we Learned from 2005:
Price Levels Compared at Per Capita
200
Price level index (World=100)
180
160
Japan
140
United States
120
Fiji
100
80
Brazil
60
Congo, D.R.
China
40
20
Burundi
India
Bolivia
0
GDP per capita
40