Global Purchasing Power Parities and Real Expenditures - Afristat

More documents

Recommendations

Info

Appendix DProductivity Adjustment inthe Government SectorThe compensation of government employees, which wasused in the ICP to price government services, shows largevariation between economies at different levels of development.Some of this variation is the result of differences inproductivity. For example, in Asia-Pacific, average compensation(based on exchange rates) in the government healthsector of Hong Kong (China) was about 120 times higherthan in Lao PDR. If no productivity adjustments weremade, economies such as Vietnam, Cambodia, or Lao PDRwould be seen as having per capita levels of real consumptionof government services comparable to, or even muchhigher than, that of Hong Kong (China), and even the levelof real GDP would be affected for those economies.To adjust government compensation for productivity,government production is assumed to follow a Cobb-Douglas functional form with constant returns to scale, asin equation (D1):Y G=C 0L GαK G1–α ,(D1)where output (Y G) is a function of labor (L G) and the capitalstock (K G) with labor and capital shares of a and (1–a),respectively, andthe scale parameter (c) depends on the units ofmeasurement.Productivity, measured as output per worker, dependson the amount of capital available per worker, as in equation(D2):1–Y GK= G C0 ,L G L G(D2)Because the government-specific capital-labor ratio (K G/L G) cannot be directly measured, the capital intensity ofgovernment in each economy was assumed to be proportionalto the capital-labor ratio for the whole economy, K/L.Rewriting equation (D2) to take into account this assumptionyields equation (D3):Y GL G= C1KL(D3)The capital stock was estimated using the perpetualinventory method with geometric decline, as in equation(D4):2005K 2005 = Σt = 19811–αwhere I tis investment in year t,I t(1 + .05) 2005–t ,and .05 is the assumed depreciation rate.(D4)179
180 Global Purchasing Power Parities and Real ExpendituresSufficient data to estimate capital stocks was availablein only a limited number of countries. In these countries,the capital-output ratio (K/Y) was found to vary from 2.5to 3.5, with the value increasing in high-income economies.Therefore, values of 2.5, 3.0, and 3.5 were used forlow-, middle-, and high-income economies, respectively.Similarly, empirical studies have found values of a to be inthe range of 0.5 to 0.7 for low- to high-income economies,respectively.With the estimate of the capital stock and data on laborforce, labor productivity can be estimated iteratively fromthe identity, as in equation (D5): 6Y GL G= cK GL G1–α=Y Gc .L G1–αK GL G(D5)Because productivity in government depends uponthe real level of economy wide output (Y), which inturn depends upon the productivity adjustment appliedto government services, equation (D5) was to be solvediteratively. 7The effects of productivity adjustment vary within eachregion and across the regions. For example, the adjustmentfactor for Mongolia was found to be 0.24, meaning that,compared with Hong Kong (China), per capita consumptionof government services in Mongolia was adjusted toabout a quarter of what it would have been in the absenceof any adjustment; the reduction was even larger for Vietnamand Lao PDR.6. The Cobb-Douglas production function for the whole economydepends on both the quality and quantity of labor and capital.Whereas we can assume that the quality of capital is reflected inits price, and thus is included in our value estimates, differencesin the quality of labor are harder to measure because they reflectcross-country differences in professional composition, education,skills, and so forth. For our purposes, we assume that we collectsalaries for equivalent qualifications for the government sector,and that therefore L Grefers to standard quality of labor employedin the government sector across countries.7. First iteration is computed with no adjustment. Then the resultsfor Y/L are inserted back into equation (D5). It takes severaliterations to converge to the solution, given 0.01 percent targettolerances.
Page 2:
Global Purchasing PowerParities and
Page 5 and 6:
© 2008 by the International Bank f
Page 7 and 8:
viContentsPart II: Technical Notes
Page 10 and 11:
Acronyms and AbbreviationsADBAfDBBO
Page 12 and 13:
PrefaceThis publication presents th
Page 14 and 15:
AcknowledgmentsThe ICP shares a com
Page 16:
Part IPurchasing Power Paritiesand
Page 19 and 20:
Global Purchasing Power Parities an
Page 21 and 22:
Global Purchasing Power Parities an
Page 24 and 25:
2005 ICP:Results and Major Findings
Page 26 and 27:
2005 ICP: Results and Major Finding
Page 28 and 29:
Page 30 and 31:
Page 32 and 33:
Page 34 and 35:
Page 36:
Tables of Results21
Page 39 and 40:
24 Global Purchasing Power Parities
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
100 Global Purchasing Power Paritie
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144: 128 Global Purchasing Power Paritie
Page 154: Part IITechnical Notes of the 2005
Page 162 and 163: Comparison-Resistant AreasSome comp
Page 164 and 165: Comparison-Resistant Areas 149mmmHo
Page 166 and 167: Data ValidationData validation was
Page 168: Data Validation 153determines the l
Page 182 and 183: Appendix AHistory of The ICPEconomi
Page 184: Appendix A 169which selected econom
Page 193: 178 Global Purchasing Power Paritie
Page 216 and 217: GlossaryActual individual consumpti
Page 218 and 219: Glossary 203tice, general administr
Page 220 and 221: Glossary 205in nonmarket production
Page 222 and 223: Glossary 207Multilateral comparison
Page 224: Glossary 209able as a result of the
show all

Global Purchasing Power Parities and Real Expenditures - Afristat

Create successful ePaper yourself

Delete template?

Save as template?