Global Purchasing Power Parities and Real Expenditures - Afristat

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Comparison-Resistant Areas 149mmmHouseholds purchase private insurance, and theinsurance company reimburses the purchaser for allor part of the cost of the products.They are purchased and paid for in full by governmentfor distribution to households.They are purchased and paid for partly by householdsand partly by government.The prices used in the ICP should reflect the full price,no matter who is paying for the goods or services. In otherwords, purchasers’ prices are required. In the ICP, the fullprice was required for products purchased using either ofthe first two means listed above. For products paid for infull by government (the third way listed above), the fullcost of each product to the government was the “price”required. Products and services that are partly paid for bygovernment and partly by households are the most difficultto measure. The price required for ICP purposes was thetotal of any amounts paid by the consumer plus any contributionto the overall cost made by the government.The PPP for consumption expenditure on health servicesincluded a combination of prices paid by consumersand government contributions measured by the sum ofinputs (that is, compensation of employees, plus intermediateconsumption, net taxes, and gross operating surplus; lessreceipts from sales). A reference PPP was used for hospitalservices because of the difficulties involved in specifyingand pricing comparable products across economies, particularlygiven the huge range of ways in which hospitalservices are provided and charged in different economies.The reference PPP was the production of health servicesby government (excluding net taxes on production andreceipts from sales).ConstructionConstruction investment is a difficult area because of thevariety of projects and techniques in different parts of theworld, even within the same region. Historically, two methodshave been used to price such projects. The first is toprice the inputs (wages for the labor; materials used in construction,such as bricks, timber, and steel; and the cost ofhiring equipment). The second is based on standard modelsfor different types of construction projects (for example,housing, bridges, roads, and factory buildings) and pricingthem by construction experts. The main advantage of thelatter approach is that overheads and productivity differencesbetween economies are taken into account. However,it is much more costly to implement than pricing inputs.A completely new method was introduced in the 2005ICP. In practice, it falls in between the input- and modelbasedapproaches. It has been termed the “basket of constructioncomponents” (BOCC) approach, and it involvespricing identifiable, complete, installed components(including the materials and labor), plus the cost of hiringany capital equipment used. The product list focused oncomponents (such as a column footing) that were significantin the total cost and then identified the major elementsof each. The types of inputs and the mix between labor andequipment differ between economies. The BOCC approachtook into account such variations in the mix of inputs. Theglobal office selected 22 components, which representedthe principal types of construction activities around theworld. Twelve basic construction inputs (such as labor,equipment rental costs, and selected materials) were alsopriced. These global specifications were priced by all ICPregions. Construction contains three basic headings: residentialbuildings, nonresidential buildings, and civil engineeringprojects. Components such as the column footingwere first mapped to systems, such as the substructure orsuperstructure, that make up the construction of a buildingor project. PPPs were first computed within each systemusing the cost data for each component within it, the sameas if they were product prices. These were then weightedseparately to the three construction basic headings. (Seethe ICP Handbook, chapter 9, for more details.)Machinery and EquipmentPricing the goods underlying investment expenditureson machinery and equipment was a problematic area inboth the regional and the ring comparisons. The approachadopted was similar to the one for consumption goods andservices, for which SPDs were used as the starting point.However, for consumption products, each region developedits own specifications. For machinery and equipment, theglobal office staff prepared the SPDs on a worldwide basisand developed the product specifications. The global officeidentified at least two manufacturers and two model numbersfor most products. National coordinators were askedto provide prices for the first of these two specificationsfor each product, provided that the model specified was
150 Global Purchasing Power Parities and Real Expendituresavailable and in common use in the economy; otherwise,the second one was to be priced. If more than one modelcould be priced on this basis, then national coordinatorswere asked to do so. In those cases for which exact productmatches could not be found, each economy had to pricea model that broadly met the specifications and was commonlyused in the economy.
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Global Purchasing PowerParities and
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© 2008 by the International Bank f
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viContentsPart II: Technical Notes
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Acronyms and AbbreviationsADBAfDBBO
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PrefaceThis publication presents th
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AcknowledgmentsThe ICP shares a com
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Part IPurchasing Power Paritiesand
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Global Purchasing Power Parities an
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Global Purchasing Power Parities an
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2005 ICP:Results and Major Findings
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2005 ICP: Results and Major Finding
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Tables of Results21
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GlossaryActual individual consumpti
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Glossary 203tice, general administr
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Glossary 205in nonmarket production
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Glossary 207Multilateral comparison
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Glossary 209able as a result of the
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