World Bank Document

appropriateness of the exchange rates as conver- where:
sion factors. For a very small number of countries, Y, = current GNP (local currency) for year,
an alternative conversion factor is used when the P, = GNP deflator for year t
official exchange rate is judged to diverge by an e, = annual average exchange rate (local currency/US
exceptionally large margin from the rate effectively
dollars) for year I
applied to foreign transactions.
N, = mid-year population for year t
In an effort to achieve greater comparability, the PI US GNP deflator for year
UN International Comparison Project (ICP) has Because of problems associated with the availdeveloped
measures of GDP using purchasing- ability of data and the determination of exchange
power parities rather than exchange rates. So far rates, information on GNP per capita is not shown
the project covers only a limited set of countries, for most East European nonmarket economies.
and some inherent methodological issues remain The average annual rate of inflation is the leastunresolved.
Nevertheless, the Bank will publish squares growth rate of the implicit gross domestic
summary findings of the fourth phase of the ICP, product (GDP) deflator, for each of the periods
relating to the comparison of GDPs in 1980 when shown. The GDP deflator is first calculated by
these data become available. Readers are referred dividing, for each year of the period, the value of
to Irving Kravis, Alan Heston, and Robert Sum- GDP in current market prices by the value of GDP
mers, World Product and Income: International Com- in constant market prices, both in national curparisons
of Real Gross Product (Baltimore, Md.: rency. The least-squares method is then used to
Johns Hopkins University Press, 1982), which calculate the growth rate of the GDP deflator for
reported on phase three of the project.
the period. This measure of inflation, like any
The estimates of 1983 GNP and 1983 per capita other measure of inflation, has limitations. For
GNP are calculated on the basis of the 1981-83 some purposes, however, it is used as an indicator
base period. With this method, the first step is to of inflation because it is the most broadly based
calculate the conversion factor. This is done by tak- deflator, showing annual price movements for all
ing the simple arithmetic average of the actual goods and services produced in an economy.
exchange rate for 1983 and of deflated exchange Life expectancy at birth indicates the number of
rates for 1981 and 1982. To obtain the latter, the years a newborn infant would live if patterns of
actual exchange rate for 1981 is multiplied by the mortality prevailing for all people at the time of its
relative rate of inflation for the country and for the birth were to stay the same throughout its life.
United States between 1981 and 1983; the actual Data are from the UN Population Division, suppleexchange
rate for 1982 is multiplied by the relative mented by World Bank estimates.
rate of inflation for the country and the United The summary measures for GNP per capita and
States between 1982 and 1983.
life expectancy in this table are weighted by popu-
This average of the actual and the deflated lation. The summary measures for average annual
exchange rates is intended to smooth the impact of rates of inflation are weighted by the share of
fluctuations in prices and exchange rates. The sec- country GDP for the entire period in the particular
ond step is to convert the GNP at current market income group. This method differs from previous
prices and in national currencies of the year 1983 editions' averaging procedures for this indicator;
by means of the conversion factor as derived previously median values were computed.
above. Then the resulting GNP in 1983 US dollars The following table shows basic indicators for 35
is divided by the midyear population to derive the countries that have a population of less than a mil-
1983 per capita GNP in current US dollars. The lion and are members of the United Nations, the
preliminary estimates of GNP per capita for 1983 World Bank, or both.
are shown in this table.
The following formulas describe the procedure Tables 2 and 3. Growth and structure of
for computing the conversion factor for year t: production
(e,2.t) ~= 1 [el2 (P'- + e,-, P + ej Most of the definitions used are those of the UN
System of National Accounts.
and for calculating per capita GNP in US dollars Gross domestic product (GDP) measures the total
for year t:
final output of goods and services produced by an
economy-that is, by residents and nonresidents-
(,) = Y, I N, * -2- t regardless of the allocation to domestic and foreign
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