Introduction to

1
Introduction to International Comparison Program
Regional Course on Price Statistics and ICP
Male, Maldives 25-29 September 2005 TIMOTHY L
OStatistician, International Comparison
ProgramAsian Development Bank
2
Why Do We Use PPPs?

• Exchange rates do not measure relative price
  levels in domestic markets thus, giving
  inconsistent estimates of income levels.
  
• Exchange rates are influenced by factors other
  than changes in relative prices, such as interest
  rates and financial flows, so they do not move in
  line with relative prices.

3
ICP ATLAS
How many dollars your money can buy?
How many goods your money can buy?
4
Low income countries share of world income is
higher and increasing in PPP terms

• Percentage Share of World Income, by income
  groups
  
• ICP and Atlas 1987 and 1995
• Country Group Atlas ICP
• 1987 1995 1987 1995
• Low income 6 5 13 18
• Middle income 17 14
  26 24
  
• High income 78 81 61 58
• World 100 100 100 100

5
Are the Japanese really richer than Americans?
Yes, if they would spend all their money in the US
6
10 year comparison of the USA and China
7
China not Japan is the second largest economy
8
Why countries participate in the ICP?

• PPPs can answer the following
• How expensive is my country relative to other
  countries?
  
• How well off are people in my country relative to
  others?
  
• What is the incidence severity of poverty in my
  country relative to my neighbors?
  
• PPPs can be used for poverty analysis together
  with detailed household income expenditure
  surveys
  
• How different is my economic structure?

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How expensive is my country?

• PPPs can tell us the following
• What is the price level of Big Mac?
• What is the price level of haircuts?
• What is the overall price level? PPP/ExRate
• How is the relative price level changing over
  time?
  
• Need PPP as well as good price deflators such as
  CPI.
  
• Persistent imbalance of price levels with respect
  to neighbors trading partners.
  
• Need PPP to manage trade tourism policy.

10
How well off are people in my country?

• Furthermore, PPPs give us the following
  information
  
• How many goods services that I can buy with my
  income relative to my neighboring countries?
  
• How are these relative quantities changing over
  time?
  
• Where does my country stand in the HDI index
  how is my relative position changing?
  

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What is the incidence severity of poverty?

• Do the poverty line incomes of different
  countries have the same purchasing power?
  
• What is the relative incidence severity of
  poverty in different regions of my country?
  
• How is it changing?

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What is the incidence severity of poverty?

• ICP can provide the answers but requires the
  following additional components
  
• PPP for the poor with poverty basket.
• intra-regional poverty PPP.
• mechanism for continuous updating.
• Detailed national level household income
  expenditure surveys.
  

13
How different is my economic structure?

• Are we investing relatively too little?
• Is my government too large?
• Structure of economy clusters around income
  levels.
  
• Helps determine which policies work which do
  not.
  
• Helps determine sign posts for growth policy.

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ICP and Statistics

• ICP subjects national statistics to international
  scrutiny.
  
• Helps spread of international standards
  adoption of best practice methods.
  
• Builds statistical capacity by harmonizing PPP
  work with other national statistical activity to
  make ICP cost effective, become part of the
  routine be sustainable over time.

15
Why should International organizations care about
PPP?

• PPPs give consistent measures of economic
  performance economic structures needed to
  
• Get a better handle on the comparative levels of
  income, poverty, price levels, economic
  structure, among member countries.
  
• Devise essential policy advice to countries.
• Help direct scarce resources to where it is
  needed most.
  
• Monitor progress in meeting the Millennium
  Development Goals.

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Analytical uses of PPP Data

• Explanation of economic, social phenomena
• Convergence of growth economic structure
• Comparative advantage in international trade
• Structural adjustment
• Assessment of poverty
• Analysis of exchange rate behavior

17
Business use of PPP

• Computation of compensation of headquarters staff
  stationed abroad
  
• Evaluation of cost of labor material for use in
  competitive bidding
  
• Analysis of size of markets in search for
  profitable direct investment opportunity

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Use by international organizations

• World Bank estimating an international poverty
  line
  
• UNDP - for the HDI
• IMF - assigning country weights in Economic
  Outlook
  
• EU - distributing structural fund
• USAID - assessing aid eligibility
• In spite of these uses, more substantive use in
  administrative decisions is hampered by lack of
  coverage, continuity and poor data quality.

19
The ICP Process
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ICP Methods

• Divide GDP into 155 basic headings of
  expenditure.
  
• Formulate the regional product list.
• Collect prices of the same items in each
  country.
  
• Compute BH level price parities as average of
  price ratios of items within the basic heading.
  
• Compute multilateral PPP as expenditure weighted
  average of BH level parities.

21
Data needed for PPP calculation

• National annual average prices of specified
  items, usually 5 or more per basic heading.
  
• GDP expenditure broken down into basic headings.
• Population for computing per capita values.
• Exchange rates for comparing with PPP.
• Assorted statistics on CPI, other price indices,
  and GDP growth rates.

22
ICP requirements

• Countries do not select products for pricing
• Fixed by the regional product list
• A sample of places time is needed
• A national annual average price is required
• Scope of the survey must be the same in every
  country
  
• Needed for international comparability
• Must use existing infrastructure as far as
  possible
  
• Too costly to duplicate CPI infrastructure

23
Brief History of ICP

• Global statistical initiative established in the
  early 1960s as a joint venture of the UN,
  University of Pennsylvania the World Bank to
  facilitate cross-country comparisons of price
  levels economic aggregates in real terms.
• Since the first round, the program has grown to a
  global initiative with around 150 countries from
  all regions of the world participating in the
  2005 global round.
• ICP is now an integral part of national
  statistical work in OECD other European
  countries.

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New Global, Regional National Management
Structure

• Partnership-based program
• Consultation with Heads of NSOs as well as price
  statisticians, price collectors NA experts
  
• Collective commitment joint effort of all
  stakeholders at all levels
  
• Global Office - World Bank
• Regional Coordinator for Asia/Pacific - ADB
• National Coordinator - NSOs

25
New Global, Regional National Management
Structure

• No single agency plays a dominant role
• Bottom-up approach supported by common interests
  national, regional international levels

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Management Coordination of ICP

• Global level
• Executive Board
• Technical Advisory Group
• ICP Council
• Global Office
• Regional level
• Regional Advisory Board
• Regional Implementing Agencies
• National level
• National Implementing Agencies
• National Administrators

27
Executive Board
Global Office
Tech Advisory Group
Council
LAC
CIS
West Asia
Asia Pacific
Africa
Eurostat/OECD
Regional Advisory Board
28
ICP Executive Board

• Provides leadership determine strategic
  priorities
  
• Promulgates ICP standards
• Approves annual work programs budgets
• Oversees activities of the ICP Global Office
• Commissions evaluations of the Program
• Plays a role in resource mobilization
• Resolves conflicts faced by the Program

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Executive Board Members

• Dennis Trewin, ABS
• Ifzal Ali, ADB
• Shaida Badiee, WB
• Len Cook, Office for Natl Stat, GB
• Enrico Giovannini, OECD
• Carlos Jarques, IADB
• Henock Kifle, AfDB
• Ben Kiregyera, Uganda Bu of Stat
• Adarsh Kishore, MSPI, India
• Li Xiaochao, NBS, China
• Brian Newson, Eurostat
• Koffi Nguesssan, ENSEA
• Luis Machinea, ECLAC
• Jacob Ryten, consultant
• Vladimir Sokolin, Gokomstat, Russia
• Mervat Tallawy, ESCWA

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ICP Council

• Represents stakeholders of the ICP not
  represented elsewhere
  
• Composed primarily of sponsors of the program
  by invitation, users of its output
  
• Provides an info-sharing vehicle thru which
  stakeholders can observe comment on ICP
  progress donors can monitor spending of their
  donations

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Technical Advisory Group

• Resolves technical issues comprising conceptual
  integrity methodological adequacy
  
• Advises on issues involving standards, methods
  procedures required by the Program
  
• Proposes research or analysis necessary if the
  ICP is to continue evolving in the face of
  changing circumstances providing better answers
  to user concerns

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TAG Members

• Chair Alan Heston, Univ. of Pennsylvania
• Members Erwin Diewert, Univ. of British
  Columbia
  
• Paul McCarthy, ABS
• D. S. Prasada Rao, Univ. of Queensland
• David Roberts, OECD
• Serguei Sergueev, Statistics Austria
• Silke Stapel, Eurostat
• Angus Deaton, Princeton Univ.
• Kimberly Zieschang, IMF

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ICP Global Office

• Overall coordination implementation of ICP
• Preparation of annual budgets work programs
• Provision of secretariat functions to the EB
• Development of ICP standards to be promulgated by
  the EB
  
• Liaison with technical backstop for the
  regional implementing agencies
  
• Global aggregation, analysis dissemination
• Networking coordination with TAG, Eurostat,
  OECD other agencies

34
Role of Regional Implementing Agencies

• Maintain close relationship with the GO including
  regular extensive exchange of info
  
• Design implement regional programs, database
  mgt standards, guidelines procedures as agreed
  with the GO
  
• Coordinate efforts of participating countries in
  the region thru info dissemination, training,
  promoting ICP standards guidelines, and use of
  ICP software
• Strike a workable compromise with the countries
  on pricing of items in the product list and
  estimation of expenditure weights

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Role of Regional Implementing Agencies

• Ensure that inter-regional link countries carry
  out their respective duties
  
• Provide technical guidance effective leadership
  to countries with advice from the TAG where
  necessary
  
• Monitor implementation of the Program in the
  countries
  
• Aggregate national results to calculate PPP
  indices apply them to derive GDP volume
  measures
  
• Analyze regional results

36
Role of National Implementing Agencies

• Ensure correct estimation of GDP expenditure
  weights for ICP
  
• Ensure full understanding, by ICP staff, of
  Program objectives standards how these
  objectives affect collection of necessary data
  
• Maintain contact with participating countries
  about consistency understanding of regional
  targets methods
  
• Ensure that data collection is carried out
  according to agreed product specifications,
  classifications time intervals

37
Regional Advisory Board

• Sets regional goals, priorities objectives
• Approves work programs provide guidance to the
  regional coordinating agency
  
• Keeps all parties involved informed
• Reviews annual reports on ICP progress
• Supports the sustainability of the program,
  shapes the vision for its future direction

38
RABICP Asia Pacific Members

• Chair Commissioner, Natl Bureau of Stat, HK,
  China
  
• Co-chair Chief Economist, ADB
• Vice Chair Director General, Stat Bureau, Japan
• Members Director General, CSO, India
• Director General, Statistics Indonesia
• Administrator, NSO,
  Philippines
  
• Deputy Chief Statistician, ABS
• Director, Statistics Division, ESCAP
• Director, SIAP
• Director General, NBS, PRC

39
RABICP Asia Pacific Members

• The remaining members of RAB
• Ex-officio Members ICP Global Coordinator, WB
  
  
• Member Secretary Assistant Chief Economist, ADB
• Regional Coordinator, ICP Asia Pacific, ADB

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Role of National Adminstrators

• Implement ICP in the country
• Liaise with the Regional Coordinator

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Framework of Partnership

• Establishes the general framework to guide the
  program of work between the Regional Implementing
  Agency (ADB for ICP Asia Pacific) the NSOs
  
• Enumerates the activities responsibilities
  required for the ICP activities in 2003-2006

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Participating Countries in ICP Asia Pacific

• Bangladesh
• Bhutan
• Brunei
• Cambodia
• Fiji Islands
• Hong Kong, China
• India
• Indonesia
• Iran
• Lao PDR
• Macao
• Malaysia

• Maldives
• Mongolia
• Nepal
• Pakistan
• Peoples Rep. of China
• Philippines
• Singapore
• Sri Lanka
• Taipei,China
• Thailand
• Viet Nam

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Objectives of ICP Asia Pacific

• To establish the ICP as a continuing program with
  a sustained capacity funding.
  
• Establish a system of comparing GDP its
  components based on purchasing power of
  currencies in domestic markets.
  
• Establish methods network of surveys to
  estimate PPPs.
  
• Build capacity so ICP becomes a routine
  sustainable part of ongoing statistics.
  

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Short Term Objectives ofICP Asia Pacific

• To provide international price volume
  comparisons of GDP its component expenditures
  
• To mainstream ICP with national statistical work
  by integrating it as far as possible with the
  national accounts price collection programs
  
• To support the harmonization of ICP with data
  collection systems for the CPI other prices

45
Short Term Objectives ofICP Asia Pacific

• To assist NSOs in conducting specific surveys
  for collection of additional data not covered by
  existing surveys
  
• To assist countries in identifying a comparable
  representative list of items across the
  countries
  
• To provide advisory services to NSOs as required
  in carrying out the above activities
  
• To organize regional workshops training

46
Strategies to Achieve Objectives

• Development of a comprehensive standardized
  survey framework
  
• Regional seminars
• Regional workshops to share best practices in the
  production, dissemination use of data
  
• Financial assistance to enhance capacity building

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ICP Outputs

• For GDP, its various sub-aggregates, down to each
  basic heading
  
• Expenditure in national currencies
• PPP in terms of a standard currency
• Real values in PPP terms (standard currency)
• Time series for GDP only for now other
  indicators later
  
• Various derived statistics price level,
  structure, etc

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Capacity Building of ICP Asia Pacific

• Mainstreaming ICP with national statistical work
• Supporting the harmonization of ICP with data
  collection systems for the CPI other prices
  
• Assisting NSOs in conducting ICP price surveys
• Assisting countries in identifying a comparable
  representative list of items across countries
  
• Providing advisory services to NSOs in carrying
  out ICP activities
  
• Organizing regional workshops trainings
• Preparing manuals handbooks to institutionalize
  ICP methodologies in the ADB DMCs

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• Thank you!