Download The basic ppp challenge and possible extensions

Angus Deaton, Princeton University
WORLD STATISTICS DAY: ICP USERS MEETING
THE BASIC PPP CHALLENGE AND
POSSIBLE EXTENSIONS OF PPP
METHODS
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
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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
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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
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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
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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
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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
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Congo, DR
2.5
Sao Tome & Principe
Ratio of new to old PPP for 2005
1
1.5
2
Cape Verde
Guinea
Burundi
Lesotho
Ghana
Togo
Guinea Bissau
Cambodia
Bangladesh
Philippines China Namibia
Tonga
India
Fiji
Ethiopia
Vietnam
Bolivia
Tanzania
.5
Nigeria
Yemen
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Angola
Congo, R
Gabon
Kuwait
Lebanon
7
8
9
10
Logarithm of per capita GDP in 2005 international $
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11
.58
.6
Gini coefficient for per capita GDP,
weighted by population
.54
.56
Post 2005 ICP
.5
.52
Pre 2005 ICP
1970
1980
1990
year
2000
2010
12
.6
Gini coefficient for per capita GDP,
weighted by population
.55
WDI 2008, 2005 prices
PWT 6.2, 1993 prices
.5
WDI 2007, 1993 prices
.45
PWT 5.6, 1985 prices
1960
1970
1980
1990
2000
2010
year
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Extensions: where from here?
 Gradual process of technical improvement
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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
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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!