Angus Deaton, Princeton UniversityWORLD STATISTICS DAY: ICP USERS MEETING

The BIG questions

The shape of the world

Who is poor and who is rich? How many poor people are there in the world? How can we measure progress on income

poverty for the MDGs? How do the poor live? What is life really like in

the poorest places in the world? How big are the differences?

What is the ratio of American to Indian income? How do we describe the living standards of poor

people to people in the rich world? The global distribution of income?

Over countries Over the citizens of the world

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NONE can be answered without PPP exchange

rates

Where do PPPs come from?

Ultimately from the International Comparison Program (ICP) Though the CIA fact-book may be the most

heavily used immediate source For academic users, perhaps the Penn World

Table Or the World Development Indicators

ICP collects prices on comparable goods & services in many countries To construct multilateral price indexes for each

country relative to a base, such as the US For consumption, investment, GDP, etc Used to deflate nominal local currency amounts

to give “real” common unit international PPP measures

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History

ICP is like the Olympic Games, though somewhat less regular First were just a few Amateurs Over time, professionalized, lots of training Huge improvement in technique Regularly held

First in 1960 & 1970s, U. Penn plus UN Six countries in 1967 Four more in 1970 Prices for relatively small number of goods and

services Extended to other countries using interpolation 1978 results for more than 100 countries

ICP 1993

Before 2008, PPPs used price data collected in 1993, updated for inflation rates since then

Important missing (or partially missing) countries, including India and China, both imputed based on old or incomplete data

A regional system with each region collecting prices on its own, and calculating its own PPPs with regional numeraire

Weak center with ad hoc links between regions Between regional links are Achilles heel of ICP Involve hard comparisons between countries with different

patterns of demand and relative prices Think of comparing a Bihari laborer who eats only rice with a

Congolese farmer, or Japanese factory worker UN (1997) report concluded that the ICP 1993 had lost

credibility Yet these numbers are encoded in the poverty MDG Academic users treat Penn World Table (1993 based) with

abandon

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ICP 2005

Did much better: global office housed by World Bank

146 countries Including India and China Many African countries never previously included

Regional structure again, each region pricing its own regional list Makes sense, but some regions very diverse

A “ring” of 18 countries, at least 2 in each region Ring countries priced a special ring list of more

than 1,100 commodities These prices were then used to link the regions Calculating price indexes for whole regions relative to

one another

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Did it make a difference?

(or just same old, same old?)

Headline result

Per capita GDP of both India and China both much reduced using the new data

Using 2005 international dollars China in 2005 from $6,757 to $4,088 India in 2005 from $3,452 to $2,222 Note that the US is numeraire

So we could just as well say that the US got richer Essentially, India and China moved further away

from the US and other rich countries Their PPPs relative to the US increased, so “real”

amounts fell

Not only India and China

10

.51

1.5

22.

5R

atio

of n

ew to

old

PP

P fo

r 20

05

6 7 8 9 10 11Logarithm of per capita GDP in 2005 international $

Congo, DR

Burundi

Sao Tome & Principe

Cape Verde

LesothoGuinea

Ghana

CambodiaTogo

Guinea Bissau

India

Philippines China Namibia

Tonga

Yemen Congo, R Lebanon

GabonKuwait

Fiji

Nigeria

TanzaniaAngola

Bolivia

Ethiopia

Vietnam

Bangladesh

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.5.5

2.5

4.5

6.5

8.6

1970 1980 1990 2000 2010year

Post 2005 ICP

Pre 2005 ICP

Gini coefficient for per capita GDP, weighted by population

12

.45

.5.5

5.6

1960 1970 1980 1990 2000 2010year

WDI 2008, 2005 prices

WDI 2007, 1993 prices

PWT 5.6, 1985 prices

PWT 6.2, 1993 prices

Gini coefficient for per capita GDP, weighted by population

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Extensions: where from here? Gradual process of technical improvement

Those who work on this could give a long list! Government services: health, education Construction Improving national accounts

International $ accounts use both national accounts and PPPs, and are only as good as weakest of these

Becoming a high priority Broadens the range of ICP and new partners

Linking the regions Technical and conceptual problems here

Important that users be involved Academics, for example, are not very well

informed on strengths and weaknesses

Prices and quantities

National income accounts are based on collection of both physical volumes and prices (or volumes and expenditures)

ICP is different, collects only prices Expenditures are collected by local statistical

offices as part of their national accounts Ideally, the ICP could collect volumes as

well as prices Beginning to do so: e.g. education, or

housing Again, the long term aim is integration

of national accounts and ICP Long term aim, but should be kept in mind

Linking between rounds

Past rounds have been different from one another In country coverage and technical improvement

Made little sense to reconcile them with previous rounds E.g. 2005 with 1993

From now on, more regular, higher quality How to blend old information with new? Avoid discontinuous jumps Updating between rounds? Long term goal is to integrate ICP with domestic

price collection Many challenges associated with this Otherwise we have to explain CPI versus ICP

differences

New uses of ICP data

Gallup World Poll uses PPPs in their data More than 155 countries, random national

samples Surveying the population of the world every year!

Gallup collects income data Single question but matches other information Includes in their numbers incomes for individuals in PPPs These numbers are valuable to their clients

Perhaps we will hear more about these uses Possible uses of Gallup data collection back into

ICP? Their regularity could conceivably help with updating Again, blue sky at this point

New uses of ICP information ICP collects millions of price quotes around the world It then turns them into a set of index numbers (PPP

exchange rates) which are published But the prices themselves could have many other uses

Others may want their own indexes, with different weights for different purposes

Sectors: e.g. much interest in health, and prices of health related items, pharmaceuticals, or procedures

International patterns of malnutrition: prices of milk, cereals, etc.

Prices for providing safe water in countries around the world Some of the prices (ring prices) are available to

researchers But many prices are not currently available Another area where working with users, and with countries,

ICP could produce and publish more, and more useful information

Thank you!