Global Purchasing Power Parities and Real Expenditures - Afristat

2005 ICP: Results and Major Findings 15Figure 4 Cross-country Differences in Indexes of RealExpenditures per Capita, by Product Groups(coefficient of variation)food and nonalcoholic beverageseducationhealthhousing, water, electricity, gas, and other fuelscommunicationfurnishings, household equipment, and maintenanceclothing and footweartransportconstructionmiscellaneous goods and servicesalcoholic beverages, tobacco, and narcoticsmachinery and equipmentrecreation and culturerestaurants and hotelsother products–2 –1.5 –1 –0.5 0 0.5 1 1.5 2.0Source: 2005 ICP.Price level indexes can be computed for each componentof GDP, showing relative prices of actual individualconsumption, collective government consumption, andgross fixed capital formation. Figure 6 provides a view of theprice levels of the four major aggregates of the GDP. Thefirst thing to note is the disparity in price levels betweenthe Eurostat-OECD and the rest of the world; its pricesare above the world average for all categories, while otherregions are all below average. In all regions except Eurostat-OECDand Western Asia, gross fixed capital formationis the most expensive component of GDP. In Eurostat-OECD, government consumption is the most expensivecomponent, particularly for the economies with the highestGDP per capita, such as Denmark, Iceland, Luxembourg,Norway, and Switzerland. In contrast, the PLI for collectivegovernment consumption is lowest in the Africa, Asia-Pacific, and South America regions.Figure 7 provides a more detailed view of price levelsfor additional categories of the GDP. It shows the differencesin the PLI across countries using the coefficient ofvariation, which is the range in values of two-thirds of thecountries. Machinery and equipment prices vary the leastacross countries, evidenced by the fact that those purchasesin most countries are imported and thus have prices basedon the exchange rate. The variation in price levels for healthand education are the greatest, with education almost threetimes that of food.Figure 8 shows the percent difference between realand nominal expenditure for the same categories includedin figure 7. The first thing to note is that education andhealth, which show the greatest variation in price levelsacross countries, were also the two categories showing thegreatest difference between nominal and real expenditures,followed by construction. All represent nontradable categoriesmore influenced by lower costs of labor and materials.The reason that there is little difference between thenominal and real expenditures for items such as food andclothing, for example, is because the high price levels in theEurostat-OECD offset the effect of the lower prices in theother regions when viewing the results at the global level.The same reason applies to the machinery, transport, andrestaurant categories.