Global Purchasing Power Parities and Real Expenditures - Afristat

148 Global Purchasing Power Parities and Real Expendituresrent. The first approach is the quantity method, in whichphysical measures of the numbers and characteristics ofdwellings are used to produce comparable real expenditureson housing. The second approach is the direct rentapproach, in which rental data for comparable housingtypes (apartment, house, and so forth) are used to computethe PPP for the dwelling basic heading. In the absence ofdetailed rental data and detailed information on the numbersand characteristics of dwellings, Asia-Pacific and Africaused the PPP for individual consumption expenditures byhouseholds (excluding rentals for housing) as a referencePPP for housing. This is a neutral approach in the sensethat housing has no effect on the overall PPP for individualconsumption. South America and CIS used the quantitymethod. Western Asia and Eurostat-OECD used a combinationof the first two methods.GovernmentFor ICP purposes, government final consumption expenditurewas divided into two components: expenditure bygeneral government on collective consumption goods andservices and expenditure by general government on individualconsumption services. The collective consumptioncomponent covers services that are provided to the communityas a whole, such as defense, police, and firefighting.The individual component relates to those services providedto specific individuals, such as health and education.In the ICP, a national accounting aggregate known as“actual individual consumption expenditure” was used forcomparison of household consumption. It comprises householdfinal consumption expenditure plus the individualcomponent of government final consumption expenditureand the final consumption expenditure by nonprofit institutionsserving households (NPISHs). The reason for usingactual individual consumption expenditure is that it is notaffected by the extent to which services such as healthand education are financed by government or purchaseddirectly by households.The national accounting convention for measuring nonmarketoutputs is the input-cost approach, which meansthat they are recorded as the sum of the wage costs of theemployees involved plus the intermediate consumption ofgoods and services (materials used, rents, and so forth) andconsumption of fixed capital. Collective consumption bygovernment and nonmarket services in health and educationproduced by government include basic headings forcompensation of employees, intermediate consumption,and some other smaller items (as shown in appendix E).PPPs for compensation of employees were compiled bycomparing salaries between economies for a number ofcarefully selected and well-defined jobs that are typical ofgovernment expenditures around the world, for both theregional and ring comparisons.Measuring the compensation of government employeesis a difficult area for ICP because labor productivityin government varies widely between economies. For theEurostat-OECD, CIS, and South America regions, productivitydifferences were ignored because they were judgedto be so small that ignoring them would not affect regionalcomparisons. However, the participating economies in theAsia-Pacific, Africa, and Western Asia regions are at verydifferent levels of economic development, reflected in governmentcompensation levels. For example, in Asia-Pacific,average compensation (based on exchange rates) in thegovernment health sector of Hong Kong was about 120times higher than in the Lao People’s Democratic Republic(PDR). If no productivity adjustments were made, economiessuch as Vietnam, Cambodia, or Lao PDR, where governmentsalaries are very low, would be seen as having veryhigh real consumption of government services—and hencevery high real GDP—compared with economies such asHong Kong and Singapore, where government salaries arerelatively much higher.The solution adopted by these regions was to adjust governmentcompensation, and hence government consumptionexpenditure, for differences in productivity. (Details onthe productivity adjustment can be found in appendix D.)HealthFor ICP purposes, basic headings for expenditures onmedical products and health services were included underhousehold consumption and individual consumption bygovernment. Government expenditures included additionalbasic headings for the production of health services.This classification reflects the different ways that healthproducts and services can be purchased:m Households purchase them directly and pay forthem in full.