Financial systems and development

demographic reporting systems, and in the cover- where
age and reliability of underlying statistical informa- Yt = current GNP (local currency) for year t
tion between various countries. The other relates P, = GNP deflator for year t
to the conversion of GNP data, expressed in differ- et = annual average exchange rate (local currency/U.S.
ent national currencies, to a common denomina-
dollar) for year t
dollar-to compare midyear population for year t
tion-conventionally the U.S7. alrocmre P$ =U.S. GNPdeflator for year t.
them across countries.
Recognizing that these shortcomings affect the Because of problems associated with the availcomparability
of the GNP per capita estimates, the ability of comparable data and the determination
World Bank has introduced several improvements of conversion factors, information on GNP per
in the estimation procedures. Through its regular capita is not shown for nonreporting nonmarket
review of member countries' national accounts, economies.
the Bank systematically evaluates the GNP esti- The use of official exchange rates to convert namates,
focusing on the coverage and concepts em- tional currency figures to the U.S. dollar does not
ployed and, where appropriate, making adjust- attempt to measure the relative domestic purchasments
to improve comparability. As part of the ing powers of currencies. The United Nations Inreview,
Bank staff estimates of GNP (and some- ternational Comparison Program (ICP) has develtimes
of population) may be developed for the oped measures of real GDP on an internationally
most recent period. The Bank also systematically comparable scale using purchasing power parities
assesses the appropriateness of official exchange (PPPs) instead of exchange rates as conversion facrates
as conversion factors. An alternative conver- tors; see Table 30 for the most recent ICP estimates.
sion factor is used (and reported in the World Ta- Information on the ICP has been published in four
bles) when the official exchange rate is judged to studies and in a number of other reports. The most
diverge by an exceptionally large margin from the recent study is Phase V, parts of which have alrate
effectively applied to foreign transactions. ready been published by the European Communi-
This applies to only a small number of countries. ties and the OECD.
The Atlas conversion factor for any year is the The ICP has now covered more than 70 countries
average of the exchange rate for that year and the in five phases, at five-year intervals. The Bank is
exchange rates for the two preceding years, after currently reviewing the data and methodology unadjusting
them for differences in relative inflation derlying the latest estimates and will include an
between the country and the United States. This updated comparison of ICP and Atlas numbers in
three-year average smooths fluctuations in prices a future edition of the Atlas or another statistical
and exchange rates for each country. The resulting publication.
GNP in U.S. dollars is divided by the midyear The ICP figures reported in Table 30 are prelimipopulation
for the latest year to derive GNP per nary and may be revised. The United Nations and
capita. its regional economic commissions, as well as
Some sixty low- and middle-income economies other international agencies, such as the European
have suffered declining real GNP per capita in con- Communities, the Organisation for Economic Costant
prices. In addition, terms of trade changes operation and Development, and the World Bank,
affect relative income levels as do currency fluctua- are working to improve the methodology and to
tions, which have been sharp during the decade. extend annual purchasing power comparisons to
Hence the levels and ranking of GNP per capita all countries. However, exchange rates remain the
estimates have sometimes changed in ways not only generally available means of converting GNP
necessarily related to the relative domestic growth from national currencies to U.S. dollars.
performance of the economies considered.
The average annual rate of inflation is measured by
The following formulas describe the procedures the growth rate of the GDP implicit deflator for
for computing the conversion factor for year t: each of the periods shown. The GDP deflator is
I4~ [\ = 2P P + \ first calculated by dividing, for each year of the
ef 2,I) = 1 [e,_2 t / + e l, j, + er] period, the value of GDP at current values by the
f- 2 t-2 _- t-) value of GDP at constant values, both in national
and for calculating GNP per capita in U.S. dollars
for year t:
currency. The least-squares method is then used to
calculate the growth rate of the GDP deflator for
the period. This measure of inflation, like any
(Y) =(Yt / Nt - e-2,) other, has limitations. For some purposes, how-
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