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International Comparison Program2011 Round
Poverty Board Meeting, Washington DCMarch 2nd, 2010
Part I
Introduction and Background
2
3
The International Comparison Program
• A worldwide statistical initiative to collect comparative price data and estimate purchasing power parities (PPPs) of the world’s economies.
What is the ICP?
• 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.
Overall Objectives
Num
ber
of c
ount
ries
part
icip
atin
g
1970 1973 1975 1980 1985 1990 1993 2005 20110
20
40
60
80
100
120
140
160
180
200
1016
34
60 64
30
117
146
186 ?
Number of Countries Participating
Africa 52
Asia 23
Pacific 5 ?
LAC 33
West. Asia 14CIS 11
OECD-Eurostat
48
China 11 cities in 2005 Whole country in 2011
Historical Global ICP Participation
4
OECD-EUROSTAT
ICPGovernance
Structure
UNSC
Executive Board
Global Office:Global Manager
+ Staff
World Bank
TAG
AfDB ADB CIS ECLAC ESCWAOECD E/STAT
Countries
Regional Advisory Boards
5
6
Preliminary Global & Regional Budgets
Global 10 260
Africa (1) 44 734
Asia - Pacific 3 200
CIS 12 310
LAC 4 683
W. Asia 2 163
Total 77 350
(000’ USD)
(1): A large part is for capacity building and technical assistance
7
What did we learn from 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
Detailed Evaluation of ICP
2005
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
And…
Framework Partnership w/ OECD-EUROSTAT Other Partnership Arrangements Agreements Country Participation
2005 Effective Governance Structure & Principles
Governance
Mutual trust Coordination mechanisms Transparency Pursuit of quality Regular communication
Agreed Principles
Objectives Work plan Agreed timetable
Strategy
8
In 2005, the Roles of ICP Players Were Better Defined than in any Previous Round
Global Coordination OECD-EUROSTAT program Regional Coordination Country Coordination
Coordination Levels
UNSC Executive Board Increased authority of Global Manager on decisions
about methodology
Decision Making Levels
Policy: UNSC; EB EB members: institutions not individuals World Bank: Host institution Technical: TAG; GO; OECD/EUROSTAT Regional coordinators Participating countries
Roles & Responsibilities
9
Part II
The ICP 2011 Round
1. Leveraging on the 2005 Round
2. Areas of Emphasis and Methodological Improvements
3. Objectives and Strategies
4. The PPP Calculation Process
5. ICP Research Agenda
6. Using PPPs in the Bank
7. Poverty PPPs
8. ICP 2011 Timetable
10
11
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
ICP 2005 Assets which the New Round will Build on
• Human resources• Methodological resources• Data validation methods• Statistical standards• Regional lists of products• Survey frameworks
Main resources developed in
2005
• National workshops• Regional workshops with countries for capacity
building and data review • Global workshops with regions for method
harmonization and data review
Participatory Approach:
Result-Oriented Workshops
12
13
Implement UNSC Recommendations Meet Users’ Needs and reach out to Users Meet Global Demand for PPP-adjusted Statistics
Objectives and Strategies for 2011 Round
Objectives
PPP results at regional level for 2011 PPP results at global level for 2011 Poverty PPPs
Main results
Improved GDP expenditures statistics Improved methodologies Learning material and ICP book ICP Data Quality Framework ICP software suite ICP databases and metadata repositories
Other results
14
Main Program Areas
`
Use Existing Methods
Improve Implementation Tools
Develop New Method
Develop Core Items List
Data & Metadata Process
Quality Framework
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
15
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
Areas of Emphasis
16
Methodological Improvements for 2011 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
Most Robust Linking Method
Improved Quality of National Accounts &
Prices
New National Accounts framework Improved GDP expenditures Field prices expected to be more consistent with national-
accounts-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
17
Improved ICP Survey Frameworks
Survey frameworks will be designed to generate average prices by category of outlets as well as urban and rural area
Outlet Categories Urban/ Capital
city
Urban/ Regional
cities
Rural Areas
1 Supermarkets, hypermarkets, and department stores
2 Minimarkets, kiosks, neighborhood shops, and grocery stores
3 Markets (Open markets, covered markets, and wet markets)
4 Mobile shops and street vendors
5 Discount shops
6 Specialised shops
7 Private service providers
8 Public or semi-public service providers
9 Internet and catalogue orders
Price Type
R Regular Price
S Sale Price
B Bargained Price
Number of units of a country’s currency that have the 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.
What are PPPs?
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.
PPPs Vs Exchange Rates
PPP Definition
Real comparisons of GDP between countries free of price differences.
Comparisons of price levels across countries and groups of products.
PPPs Allow Comparisons
18
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Country 1 … Country n
Price Surveys
… Price Surveys
National Accounts
… National Accounts
Region 5
PPPs
GDP Expendi-tures
Region 4
PPPs
GDP Expendi-tures
Region 3
PPPs
GDP Expendi-tures
Region 2
PPPs
GDP Expendi-tures
Region 1
PPPs
GDP Expendi-tures
OECDEurostat
PPPs
GDP Expendi-tures
WORLD
Global PPPs
PPP Adjusted
GDPs
SURVEY TYPES:
• Household Consumption• Health• Education• Government Occupations• Equipment• Construction
How PPPs are calculated?
5 ICP Regions
OECD-Eurostat
19
20
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
21
AfDB ADB CIS ECLAC ESCWA
ICP Global Office at World Bank
PR
ICE
S &
GD
P E
XP.
OECD -EUROSTATPPPS + CORE PRICES
Flow of Data
Global PPPS
CO
RE
PR
ICE
S +
RE
GIO
NA
L P
PP
s
52 Countries 28 Countries 11 Countries 14 Countries
PR
ICE
S &
GD
P E
XP.
PR
ICE
S &
GD
P E
XP.
PR
ICE
S &
GD
P E
XP.
PR
ICE
S &
GD
P E
XP.
PR
ICE
S &
GD
P E
XP.
48 Countries 33 Countries
OECDEUROSTAT
Number of Consumption Items to be Priced by the Countries
Category From
Regional List
From Global Core
List
01 - Food and non-alcoholic beverages 236 154
02 - Alcoholic beverages and tobacco 19 1603 - Clothing and footwear 104 7204 - Housing and utilities 18 19
05 - Furnishing & household equipment 82 6806 - Health 86 8907 - Transportation 49 5308 - Communication 16 1509 - Recreation and Culture 65 5310 - Education 8 711 - Restaurants 31 3312 - Misc goods and services 36 21Total 750 600
Monthly or quarterly price collections throughout 2011
22
23
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, Non-
Government Organizations, International Development Agencies)
Major Uses of PPPs by International Organizations
Main uses of ICP data
Poverty analysis – requires average price data with some disaggregation by region, by outlet types , and by urban/rural
Research to improve ICP methodology, including aggregation methods – requires access to more detailed data
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
Micro data (individual observations)
National annual average prices
Disaggregated 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
Types of ICP data
Uses of PPPs by Researchers
24
25
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
Research Topics
26
Collaboration on Research Reaches out to ICP users to ensure that data
collected responds to users’ needs Collaborates with experts from within and
outside the Bank in 6 areas as shown in the table below:
To improve some methodological aspects,
the Global Office
Six Areas CollaborationInside the Bank Outside the Bank
1 Education Human Development Network Education (HDNED)
Academy for Education Development (AED)
UNESCO Institute of Statistics
2 Health Human Development Network Health (HDNHE)
Institute for Health Metrics and Evaluation (IHME)
3 Government Occupations PREM Public Sector Governance team (PRMPS)
4 Water Water and Sanitation Program
5 Energy Energy Unit
6 Transport by air, by land, and by sea and inland waterways
Transport Team
27
How are ICP/PPPs used in the Bank & Fund
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
Poverty headcount
index
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
GNI/Capita new
methodology
Proposal under discussion to incorporate PPP GDP with market-based GDP in calculation of economic weight
World Bank Voice
Discussion
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)
Quota Calculation of
Fund
28
New Research on PovertyEstimating Poverty PPPs
$1/day poverty estimates rely on consumption PPPs $1/day
Weights are consumption shares from national accounts Prices are obtained from ICP
PPPs are weighted
averages of prices
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)
Weights & Prices
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)
Research: PPPPs
29
Estimating Poverty PPPsPPPP methodology & estimates by Deaton/Dupriez
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
Main conclusion
Future research (under ICP 2011) and work 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
Research: PPPPs
30
3. Capacity Building
2010 2011 2012 2013
ICP 2011 Timetable
1. Fund Raising
2. Meetings
2014
4. Quality Assess.
5. Methodologies
6. Survey Prep.
7. Survey Implement.
8. Nat. Accounts
9. Regional Results
10. Global Results
31
More information on the International Comparison
Program can be found on the ICP website:
www.worldbank.org/data/ICP
32
Thanks
33
Extra Slides:
The 2005 Results
3333
34
New View of the World Economy2005 ICP Results
World Share of GDPBased on Market Exchange Rates
World Share GDPBased on PPP
Middle-income economies, 32%
Low-income economies, 7%
Low-income economies, 2%
Middle-income economies, 19%
High-income economies, 78%
High-income economies, 61%
35
Disparity Across Economies 2005 ICP Results
World Population (%)
World GDP (%)
0
10
20
30
40
50
60
70
Low Middle High
36
What we Learned from 2005:Largest 12 Includes 5 Developing Countries
Largest economies: 1. United States2. China3. Japan4. Germany5. India6. United Kingdom7. France8. Russian Federation9. Italy10. Brazil11. Spain12. Mexico
12 economies account for 2/3
of world expenditures
37
What we Learned from 2005:Economic Well Being
PPP- Based Actual Individual Consumption per capita, $
0
5,000
10,000
15,000
20,000
25,000
30,000
Eurostat/OECD CIS LAC Western Asia Asia/Pacific Africa
38
What we Learned from 2005:Distribution of Consumption Per Capita
Distribution of consumption per capita, US$
0
5,000
10,000
15,000
20,000
25,000
30,000
35,0005,000 1,000
World Average
6,096
20,000
What we Learned from 2005: Economies with the highest & lowest GDP per capita
Luxembourg 780
Qatar 765
Norway 530
Brunei Darussalam 529
Kuwait 501
Ethiopia 6.6
Niger 6.5
Guinea-Bissau 6.3
Liberia 4.3
Congo, Dem. Rep. 2.9
Richest Economies(% of world average) Poorest Economies
(% of world average)
39
40
What we Learned from 2005: Price Levels Compared at Per Capita
Brazil
Japan
United States
Bolivia
Fiji
Burundi
ChinaCongo, D.R.
India
0
20
40
60
80
100
120
140
160
180
200
GDP per capita
Pric
e le
vel i
nde
x (W
orld
=10
0)
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