Global Purchasing Power Parities and Real Expenditures - Afristat

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Glossary 203tice, general administration, and the protection of theenvironment.Communication. Includes expenditures on postal servicesand on telephone and telefax equipment and services.Comparability requires participating countries to priceproducts that are identical or, if not identical, equivalent.Pricing comparable products ensures that differences inprices between countries for a product reflect actual pricedifferences and are not influenced by differences in quality.Two or more products are said to be comparable if eitherm Their physical and economic characteristics areidentical orm They are sufficiently similar that consumers are generallyindifferent between them.Compensation of employees. All payments in cash and inkind made by employers to employees in return for workdone by them during the accounting period. These paymentscomprise gross wages and salaries in cash and in kind,employers’ actual social contributions, and imputed socialcontributions.Component. A subset of goods and/or services that makeup some defined aggregate.Consistency. The requirement that the prices collected bycountries are consistent with the prices underlying theirestimates of final expenditure on GDP. In most cases, thismeans that they should be national annual purchasers’prices. At the basis of a comparison is the identity—expenditure= price multiplied by volume—and volumes areobtained by dividing expenditures by prices. Using pricesthat do not correspond to those used to derive the expenditureswill result in the volumes being either underestimatedor overestimated.Construction. Includes the construction of new structuresand the renovation of existing structures. Structuresinclude residential buildings, nonresidential buildings, andcivil engineering works.Consumer durables. Durable goods acquired by householdsfor final consumption (that is, those that are not used byhouseholds as stores of value or by unincorporated enterprisesowned by households for purposes of production);they may be used for purposes of consumption repeatedlyor continuously over a period of a year or more.Consumption of fixed capital. The reduction in the valueof the fixed assets used in production during the accountingperiod, resulting from physical deterioration, normal obsolescence,or normal accidental damage.CPD method (country-product-dummy method). The multilateralmethod used by the ICP to obtain transitive PPPsat the basic-heading level through regression analysis. Ittreats the calculation of PPPs as a matter of statistical inference,an estimation problem rather than an index numberproblem. The underlying hypothesis is that, apart from randomdisturbance, the PPPs for individual products withina basic heading are all constant between any given pair ofcountries. In other words, it is assumed that the pattern ofrelative prices of the different products within a given basicheading is the same in all countries. It is also assumed thateach country has its own overall price level for the basicheading and that it is that which fixes the levels of absoluteprices of the products in the basic heading for the country.By treating the prices observed in the countries for the basicheading as random samples, the PPPs between each pair ofcountries and the common pattern of relative prices can beestimated using classical least-square methods. The methodallows sampling errors to be estimated for the PPPs.Deflation. The division of the current value of some aggregateby a price index—described as a “deflator”—to valueits quantities at the prices of the price reference period.ECP (European Comparison Program). The ICP regionalprogram for Europe carried out under the auspices of theUnited Nations Economic Commission for Europe. It isorganized by Eurostat, the OECD, the Interstate StatisticalCommittee of the Commonwealth of Independent States,and the State Committee of the Russian Federation onStatistics.Education. Includes expenditures by households on preprimary,primary, secondary, postsecondary, and tertiaryeducation; also includes expenditures by government oneducation benefits and reimbursements and on productionof education services.
204 Global Purchasing Power Parities and Real ExpendituresEKS method (Éltetö-Köves-Szulc method). The methodused to aggregate basic-heading PPPs to obtain PPPs foreach level of aggregation up to and including GDP. Strictlyspeaking, the EKS method is a procedure whereby anyset of intransitive binary index numbers are made transitive.The procedure is independent of the method usedto calculate the basic-heading intransitive binary indexes.The method used to obtain the intransitive binary PPPsfor a basic heading or aggregate involves calculating first amatrix of Laspeyres-type PPPs, then a matrix of PaaschetypePPPs, and finally, by taking the geometric mean of thetwo, a matrix of Fisher-type PPPs. The Fisher-type PPPsare made transitive and multilateral by applying the EKSprocedure, which involves replacing the Fisher-type PPPbetween each pair of countries by the geometric mean ofitself squared and all the corresponding indirect Fisher-typePPPs between the pair obtained using the other countriesas bridges. The resulting EKS PPPs provide real final expendituresthat are not additive nor subject to the Gerschenkroneffect. EKS results are considered to be better suited tocomparisons across countries of the price and volume levelsof individual aggregates.Error. The difference between the observed value of a PPPor volume index and its “true” value. Errors may be randomor systematic. Random errors are generally referred to as“errors.” Systematic errors are called “biases.”Expenditure categories. The level of aggregation betweenmain aggregates and expenditure groups.Expenditure weights. The shares of expenditure componentsin current-price GDP.Exports of goods and services. The value (f.o.b.) of exportsof goods and services.Final consumption consists of goods and services used upby individual households or the community to satisfy theirindividual or collective needs or wants.Final expenditure consists of final consumption expenditureand gross fixed capital formation.Fisher-type PPP. The PPP for a basic heading or an aggregatebetween two countries that is defined as the geometricmean of the Laspeyres-type PPP and the Paasche-type PPPfor the basic heading or the aggregate. See also “LaspeyrestypePPP” and “Paasche-type PPP,” because their formulationdepends on whether they are being used to calculatebasic-heading PPPs or to aggregate basic-heading PPPs.Fixity. The convention whereby the price and volumerelativities between a group of countries that were establishedin a comparison covering just that group of countriesremain unchanged, or fixed, when the countries of thegroup are included in comparisons with a wider group ofcountries. For example, the price and volume relativities ofthe ICP regions and Eurostat-OECD remain unchanged inthe global comparison.Food and nonalcoholic beverages. Food products and nonalcoholicbeverages purchased for consumption at home.Excluded are food products and beverages sold for immediateconsumption away from the home by hotels, restaurants,cafés, bars, kiosks, street vendors, automatic vendingmachines, and so forth; cooked dishes prepared by restaurantsfor consumption off their premises; cooked dishesprepared by catering contractors, whether collected by thecustomer or delivered to the customer’s home; and productssold specifically as pet foods.Furnishings, household equipment, and household maintenance.Includes expenditures on furniture and furnishings;carpets and other floor coverings; household textiles;household appliances; glassware, tableware, and householdutensils; tools and equipment for house and garden; andgoods and services for routine household maintenance.GDP. Gross domestic product, expenditure-based, is totalfinal expenditures at purchasers’ prices, including the f.o.b.value of exports of goods and services, less the f.o.b. valueof imports of goods and services.General government. The institutional sector that consistsof central, regional, state, and local government units,together with social security funds imposed and controlledby those units. It includes nonprofit institutions engaged
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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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Part IITechnical Notes of the 2005
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Comparison-Resistant AreasSome comp
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Comparison-Resistant Areas 149mmmHo
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Data ValidationData validation was
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