International Comparison Program2011 Round

Poverty Board Meeting, Washington DCMarch 2nd, 2010

Part I

Introduction and Background

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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

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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

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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

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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

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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

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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

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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

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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        

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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

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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

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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

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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

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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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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

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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

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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

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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

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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

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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

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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

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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

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More information on the International Comparison

Program can be found on the ICP website:

www.worldbank.org/data/ICP

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Thanks

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Extra Slides:

The 2005 Results

3333

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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%

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Disparity Across Economies 2005 ICP Results

World Population (%)

World GDP (%)

0

10

20

30

40

50

60

70

Low Middle High

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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

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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

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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)

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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)