Global Purchasing Power Parities and Real Expenditures - Afristat

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Glossary 205in nonmarket production that are controlled and mainlyfinanced by government units or social security funds. Alsoreferred to as “government.”Gerschenkron effect. Applicable only to aggregation methodsthat use either a reference price structure (that is, eachcountry’s quantities are valued by a uniform set of prices)or a reference volume structure (that is, each country’sprices are used to value a uniform set of quantities) to comparecountries. For methods employing a reference pricestructure, a country’s share of total GDP (that is, the totalfor the group of countries being compared) will rise as thereference price structure becomes less characteristic of itsown price structure. For methods employing a referencevolume structure, a country’s share of total GDP will fallas the reference volume structure becomes less characteristicof its own volume structure. The Gerschenkron effectarises because of the negative correlation between pricesand volumes.GK method (Geary-Khamis method). An average-pricemethod to compute PPPs and real final expenditures abovethe basic heading. It entails valuing a matrix of quantities,using a vector of international prices. The vector is obtainedby averaging national prices across participating countriesafter they have been converted to a common currency withPPPs and weighted by quantities. The PPPs are obtainedby averaging within participating countries the ratios ofnational and international prices weighted by expenditure.The international prices and the PPPs are defined by a systemof interrelated linear equations that require solvingsimultaneously. The GK method produces PPPs that aretransitive and real final expenditures that are additive. Ithas a number of disadvantages. One is that a change in thecomposition of the group can change significantly the internationalprices, as well as the relationships between countries.Another is that the real final expenditures are subjectto the Gerschenkron effect, which can be large. GK resultsare considered to be better suited to the analysis of priceand volume structures across countries.Goods. Physical objects for which a demand exists, overwhich ownership rights can be established, and whoseownership can be transferred from one institutional unit toanother by engaging in transactions on the market. They arein demand because they may be used to satisfy the needs orwants of households or the community or used to produceother goods or services.Government final consumption expenditure. Expenditure,including imputed expenditure, incurred by general governmenton both individual consumption goods and servicesand collective consumption services.Gross fixed capital formation. Measured by the total valueof a producer’s acquisitions, less disposals, of fixed assetsduring the accounting period, plus certain additions to thevalue of nonproduced assets (such as subsoil assets or majorimprovements in the quantity, quality, or productivity ofland) realized by the productive activity of institutionalunits.Health. Includes expenditures by households on medicalproducts, appliances and equipment, outpatient services,and hospital services; also includes expenditures by governmenton health benefits and reimbursements and on productionof health services.Household. A small group of persons who share the sameliving accommodation; who pool some, or all, of theirincome and wealth; and who consume certain types ofgoods and services collectively, mainly food and housing. Ahousehold can consist of only one person.Household final consumption expenditure. Expenditure,including imputed expenditure, incurred by residenthouseholds on individual consumption goods and services,including those sold at prices that are not economicallysignificant.Housing, water, electricity, gas, and other fuels. Includesexpenditures on actual and imputed rentals for housing;maintenance and repair of the dwellings; water supply andservices related to the dwellings; and electricity, gas, andother fuels.ICP (International Comparison Program). Started as aresearch project in the 1960s with the ultimate goal of
206 Global Purchasing Power Parities and Real Expendituresestablishing a regular program of worldwide PPP comparisonsof GDP. Comparisons were organized for 1970, 1973,1975, 1980, 1985, and 1993. They covered 10, 16, 34, 60,64, and 83 countries, respectively. Responsibility for thesecomparisons was shared by the United Nations StatisticsDivision and the University of Pennsylvania. The WorldBank is the current global coordinator of the ICP.Ikle method. An average-price method to compute PPPsand real final expenditures above the basic heading. Itentails valuing a matrix of quantities, using a vector ofinternational prices. The vector is obtained by averagingnational prices across participating countries after they havebeen converted to a common currency with PPPs. The Ikleweighting scheme is based on real expenditure structures.The PPPs are obtained by averaging within participatingcountries the ratios of national and international pricesweighted by expenditure. The international prices and thePPPs are defined by a system of interrelated linear equationsthat require solving simultaneously. The Ikle methodproduces PPPs that are transitive and real final expendituresthat are additive. Compared to the GK, the Ikle minimizesthe Gerschenkron effect. Ikle results are considered to bebetter suited to the analysis of price and volume structuresacross countries.Imports of goods and services. The value (c.i.f.) on importsof goods and services.Indirect comparison. A price or volume comparisonbetween two countries made through a third country.For example, in the case of countries A, B, and C, the PPPbetween A and C is obtained by dividing the PPP betweenA and B by the PPP between C and B as follows: PPPA/C= PPPA/B / PPPC/B.Individual consumption expenditure by government. Theactual and imputed final consumption expenditure incurredby general government on individual goods and services.Individual consumption expenditure by households.The actual and imputed final consumption expenditureincurred by households on individual goods and services;also includes expenditure on individual goods and servicessold at prices that are not economically significant.By definition, all final consumption expenditures of householdsare for the benefit of individual households and areindividual. Also referred to as “final consumption expenditureof households” and “household final consumptionexpenditure.”Individual consumption expenditure by NPISHs. Theactual and imputed final consumption expenditure incurredby nonprofit institutions serving households (NPISHs) onindividual goods and services. In practice, most final consumptionexpenditures of NPISHs are individual in nature,and so, for simplicity, all final consumption expendituresof NPISHs are treated by convention as individual. Alsoreferred to as “final consumption expenditure of NPISHs”and “social transfers in kind.”Intermediate consumption. The value of the goods and services,other than fixed assets, that are used or consumed asinputs by a process of production.International dollars. The purchasing power parities atthe global level for each economy are computed with theUnited States = 1.00, making it the numeraire currency.These PPP conversion factors transform GDP and aggregatesin national currency into a common world currencyreferred to as “real expenditures in the international dollar.”To remove the effect of the U.S. exchange rate, indexes ofreal expenditure per capita at the world = 100 reflect theratio of national real expenditures per capita to the worldaverage real expenditures per capita.Item. A good or service precisely defined for use in priceobservation. A good or service defined by an item specificationand included on an item list. Countries select the itemsthey price from among the items included on the item list.Also referred to as “product.”Machinery and equipment. Includes fabricated metal products,general purpose machinery, special purpose machinery,electrical and optical equipment, transport equipment,and other manufactured goods.Miscellaneous goods and services. Includes expenditureson personal care, personal effects, social protection, insurance,and financial and other services.
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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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Data Validation 153determines the l
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Page 222 and 223: Glossary 207Multilateral comparison
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