World Comparison Real Gross Domestic Product and Purchasing Power
IV. DETAILED RESULTS OF THE GLOBAL COMPARISON
A. COUNTRY COVERAGE AND ORGANIZATION
In phase V of the ICP a total of
64 countries and areas participated in one or another of the regional
comparisons conducted with reference year 1985, as described in
section III. After the regional comparisons were completed in
the European Communities, the OECD, Eastern Europe (Group II),
Africa, ESCAP and the Caribbean, arrangements were made to generate
global results by linking the above regional comparisons. From
the outset, the global programme in phase V was designed to be
based on the set of regional comparisons with reference year 1985.
As all regional comparisons follow basically the same principles
of the general ICP methodology, it helped to establish consistency
among regional data. The database compiled and processed in the
regional exercises was used in the global computation. The processing
yielded globally linked results for 56 countries.
At the world level, the Statistical
Division of the United Nations Secretariat (UNSTAT) played an
overall coordinating role in respect to the global comparison
effort. The Statistical Office of the European Communities (EUROSTAT)
undertook the calculation of the global results.
An overview of the global framework
of the 1985 ICP is provided in figure I.
LINKING OF REGIONAL RESULTS
In phase V, regional comparisons
were linked to form a global comparison by the core country method.
Core comparisons are either bilateral comparisons between two
countries belonging to different regions or the result of a country's
participation in two different regional comparisons simultaneously.
In phase V it was intended that in each region one or more countries,
designated as "core" countries, would price some specifications
for another region as well as their own. The choice of a country
to play the role of core country may have a significant influence
on the quantity indices between countries belonging to different
regions. It is thus important to have a sufficient number of core
comparisons so that this source of error, which may be likened
to sampling error, is reduced.
One of the greatest difficulties
in phase V has been the insufficient number of core comparisons.
Although about 20 core comparisons were envisaged when phase V
of the ICP was launched in 1984, one year later, when the actual
work began, it became clear that resources would not permit more
than 10. Soon, even this expectation turned out to be over-optimistic.
The United Nations Statistical Commission, at its twenty-fifth
session, in 1989, recognized that unforeseen difficulties were
encountered in respect to the linking of the regional comparisons
because the number of core comparisons carried out proved to be
significantly lower than originally planned. Some core comparisons
were discontinued; work on others was not proceeding well. Finally,
only the United Kingdom-Kenya comparison and the two implicit
core comparisons (involving Austria and Japan, by virtue of their
participation in the work in two regions simultaneously) were
satisfactorily completed in phase V.
There are several reasons why the
core comparisons have proved to be so difficult. One important
reason is that the core comparisons constitute a substantial additional
burden on the countries participating in them. This arises because
of the limited comparability between countries belonging to different
regions. At the same time, participation in the core comparison
brings little direct benefit to the core countries themselves,
since, however interesting their results may look in the overall
comparisons, they may not be particularly interested in the results
of the specific bilateral comparison with the partner country.
Another important factor was the shortage of financial resources,
which restricted the travel of country experts to meet their counterparts
to match commodity specifications in the partner countries. The
entire system of the regionalized world comparison was based on
the assumption that, for the sake of the reliability of the world
comparison, there would be willingness on the part of a number
of countries to accept the extra burden of the core comparison
work. In practice, however, the extent of cooperation fell short
of anticipations.
In spite of the many drop-outs, EUROSTAT
was able to provide the necessary minimum links among most regions.
As agreed by the coordinating international organizations involved
in the ICP, the data were processed to present results at a common
aggregated classification level concerning 53 categories, or detailed
expenditures on GDP. The EEC countries were linked with the other
OECD countries through the common EEC-OECD comparison. Hungary,
Poland and Yugoslavia were linked by binary comparisons through
Austria at the level of 53 categories. For the ESCAP countries,
the 53 categories of the regional comparison results were linked
through Japan's dual participation in the OECD and ESCAP comparisons.
Africa was linked with the EEC in the following manner. For consumption,
the link was obtained by comparing prices of all the countries
involved and the comparison was reinforced by additional pricing
carried out by the United Kingdom and Kenya. For the other aggregates,
the link was made through a binary United Kingdom-Kenya comparison.
The linking of the African comparison was achieved at the level
of 53 categories by keeping for each aggregate the volume ratio
between the EEC total and the African total. Overall, globally
linked data on GDP and its main components were generated for
56 countries at the 53-category level. Tables 1-14 contain data
according to this GDP breakdown that constitute the most detailed
available results of the programme at the global level with reference
year 1985.
Working on the processing of the
global results, EUROSTAT faced outstanding technical difficulties
due to problems of correspondence of classifications and differences
in the methods applied by the various regions. Regarding the linking
of the Caribbean region to the rest of the world, these efforts
have greatly delayed the completion of the global processing.
In spite of the lack of a core comparison of the Caribbean countries
with other regions, EUROSTAT attempted to establish a link for
the Caribbean with Africa for the final consumption of households
by using the prices of all the countries of the two regions; however,
the difficulties encountered could not be resolved entirely and
the comparison of aggregates other than consumption could not
be achieved. In addition to this, the Caribbean regional data
themselves had not been approved by the time of the preparation
of this report due to difficulties in convening a regional meeting
of the participating countries. To avoid further delay in releasing
the global results, the organizations involved reluctantly gave
up the intention to incorporate the seven Caribbean countries
in the final tables. Therefore, in this publication comparison
results for the Caribbean countries are not presented. In the
case of Nepal, the participation of which in the ESCAP programme
was limited to the comparison on consumption in phase V, results
are presented only in the regional context.
During the processing of the final
tables, EUROSTAT made every effort to keep the regional results
unchanged. Since this was not always possible, readers will find
that the global results in respect of some countries may not be
the same as those obtained in the regional context. This phenomenon
is the consequence of the system of international average prices
applied, namely, that the price structure and, accordingly, the
PPPs and the quantity ratios depend on the country coverage for
which they are calculated. In other words, this means that the
parities and real quantity ratios between a given pair of countries
(say, France and Italy) would be different if calculated bilaterally,
or within the frame of the European Communities (EEC), or of OECD,
or of Europe, or, let us say, in the context of the 56 globally
linked countries. To avoid the proliferation of the results, the
principle of "fixity" has been imposed. The practice
of "fixing" the results implies that comparison results
between countries belonging to a certain grouping are supposed
to remain unchanged even if their results are later incorporated
in any other comparison involving a larger group of countries.
In phase V, however, in spite of EUROSTAT's best efforts regarding
the global processing, the fixity principle could not be honoured
for all countries and regions in this study, partly because the
expenditures used for the same country in two different regional
comparisons diverged. It should be noted that in the global comparison,
figures for Austria and Japan are those used in the common EEC-OECD
comparison.
Having said this, users of the global
data should be aware of the following considerations when analysing
1985 results worldwide. The linking was carried out by starting
from the regional results available at the 53-cate- level. While
most of the intraregional results were originally computed by
using an aggregation method that guarantees additivity, this property
is not guaranteed for global (interregional) results. As a consequence
of the method of linking applied in phase V, fixity of results
for countries in some regions (mainly ESCAP and Group 11) might
have been slightly affected after the global processing was completed,
although the intention was to keep fixity for all regions throughout
the linking. Furthermore, one should keep in mind that the only
real values that are additive are those of the United States;
that is, in the case of the United States the real value is equal
to the nominal value for each aggregate. However, this is not
the case for other countries in the comparison.
For detailed information on the method
of linking the regional results in phase V, readers may direct
inquiries to EUROSTAT, Luxembourg.
USES AND LIMITATIONS OF ICP
RESULTS
In the preceding sections some thought
was already given to potential uses of international comparisons
of macroeconomic aggregates, such as GDP and its components. In
this section some further aspects of the advantages and limitations
of ICP results are presented.
In general, the level of accuracy
and reliability of overall ICP results is believed to be high;
however, the limitations described here deserve attention with
a view to the correct interpretation of the results.
- Some uses of ICP data
In an increasingly interrelated
world economy, countries-whether large or small-need to review
their economic attainments and prospects in an international
context. Perhaps the most direct use of ICP results is the use
of the data for gaining new perspectives for studying a country's
economic situation in respect to its price structure, its real
output, and its utilization of real output for various purposes.
Naturally, prices and quantities could be studied solely in
the context of the national information of the country concerned.
On the other hand, the ICP approach can permit the evaluation
of the development of price levels and the structure of prices
in an intercountry perspective in real terms, in addition to
the information obtained within the given economy over time.
Thus, the insights gained from studies limited to available
national data may be augmented, if the evidence for similar
economic topics in other countries is taken into account. Such
issues as the relationship of food prices within a country in
comparison to the prices of industrial goods or services can
be much better analysed if the equivalent relationships in other
countries can also be studied.
In the regional and global comparisons
in the ICP framework, the data of 64 countries are available
to engage in research of this sort, permitting a wide scope
of comparisons. The principal advantage of the ICP lies in achieving
real term comparability for the economic data of nations by
converting them into quantitatively meaningful magnitudes internationally.
This is the consequence of using PPPs as conversion factors
which eliminate price-level differences between countries so
that the PPP-converted expenditures reflect only differences
in the quantities. Low quantities times high prices can just
as easily produce a certain total value (and percentage share
in the national total expenditure) as high quantities multiplied
by low prices can. However, if the quantity of, say, food consumption
were to be estimated in both countries, and the same prices
were applied to it in both countries, the level of food consumption
in the two countries would become comparable in real terms and
the shares of food consumption within total expenditure could
be more meaningfully compared between them.
For example, in comparing the food
consumption levch in country A and country B, if unadjusted
national data are used, it is not possible to tell whether an
identical share of food consumption in the two countries (say,
15 per cent of total expenditures in both cases) reveals a true
identity of those shares or not. The ICP results, in contrast,
reveal the level and the share of food consumption in the two
countries in real terms, which transforms the nominal national
data to a comparable quantitative basis.
The ICP, in the process of comparisons,
produces comparable quantitative information by providing an
international analysis of national price systems. Departing
from the simple notion that data about prices multiplied by
the relevant quantities equal the values for the same category,
the use of international prices not only can establish the quantities
in real terms for each country, but also can throw light on
the national prices in each country in every expenditure category.
Hence, it can lead to the evaluation of national price levels
and price structures in the international context. Moreover,
it can lead to insights into areas where a country's prices
are higher or lower than they are internationally. Regarding
price structure and price-level analysis, global ICP data provided
in table 6 show the effects of macroeconomic policies that may
move the exchange rates independently of relative price movements,
while table 7 shows the effects of different cost and pricing
structures within a country.
The use of internationally comparable
quantity and price data for any given country can be manifold.
As mentioned earlier, it can enlighten the study of the domestic
structure of prices and may lead to the better understanding
of the underlying causes of national price peculiarities. Furthermore,
it can lead to a more comprehensive evaluation of consumption
levels, as it can enhance the research of domestic consumption
structures and may inspire decisions based on their probable
evolution.
In respect to capital formation,
if only national currency data are used, the problems faced
are similar. Only by recalculating the national capital formation
data into internationally feasible quantity and price magnitudes
can a comprehensive and thorough evaluation of the data be performed.
Indeed, the problems of economic growth and development can
be studied in a much more extensive way if the database expressed
in national currency is augmented by internationally comparable
data, such as those produced by the ICP.
Overall, the data from the ICP
permit the review of a number of issues in an international
economic perspective that cannot be effected by relying on national
data alone. In addition to macroeconomic analysis, countries
often use the vast information base of the ICP for the evaluation
of domestic development projects in specific areas.
In the context of the uses of ICP
data, it would be erroneous to suggest that either countries
or international organizations can limit their interest to the
results of just the regional or just the world ICP data. Typically,
most users can benefit from the availability and simultaneous
analysis of both.
Since most countries have intensive
economic interactions within their own regions, comparative
data about countries with which they share a common interest
can be most helpful. The regional ICP comparisons provide important
details for such reviews. Likewise, organizations responsible
for economic matters within a region need data about the composition
of production and consumption by the countries that form
the region. Also, the evaluation of regional prospects can be
enhanced by having internationally comparable data about capital
formation, the role of government consumption in the countries
and similar information that is also available from the ICP.
Nevertheless, countries usually
have important international economic ties outside their regions
as well. For example, more and more economic transactions take
place between countries from various continents, like economic
relations between developed market economies and dynamically
emerging countries of Asia or the transition economies of Eastern
Europe. In order to understand the background to economic processes
in the countries in question, the availability of internationally
comparable world-level data can be extremely helpful. The worldlevel
comparisons, in addition to their use to countries, can be very
well utilized by global business entities (such as transnational
corporations) and by world-level international organizations
as well. In fact, global ICP data have been widely used in all
kinds of research projects and their analytical uses seem to
be boundless. These considerations, however, should in no way
curtail the validity of the agreement reached by the producers
of ICP data that the results would not be used for administrative
purposes at the global level. The same applies to regional ICP
results unless there is a consent of the participating countries
concerned e.g., in the case of the EEC. This position is supported
by the United Nations Statistical Commission and is reflected
accordingly in its documents.
- Limitations
In the following, some limitations
of the ICP data are discussed. Understanding the limitations
of methodology and other statistical factors, indeed, is a prerequisite
for the proper use of the ICP results. Although the limitations
do not necessarily indicate shortcomings of the ICP, as they
may simply reflect properties of the methods applied, analysts
who are not aware of or disregard the limitations of the data
can reach faulty conclusions. Moreover, by attempting to reduce
unfunded expectations towards the programme, one can hope to
avoid disappointment with the results among users. Also, for
the sake of fairness, there should be an emphasis not only on
the advantages of having ICP results available but on the limits
of their uses as well.
The enumerated benefits from the
ICP do not accrue to the countries or international bodies without
costs. Although these costs are probably not very high if compared
to the importance of studying the economic issues at stake,
they are not negligible in the reduced framework of ever-shrinking
statistical budgets available at national and international
levels. On these funds alone the ICP effort could not have been
materialized in phase V, had it not been for the cooperative
spirit and contributions by governmental and international agencies
as well as the unselfish enthusiasm and willingness of participating
countries to incur most of the expenses involved in reporting
data for the comparison. A costly and time- and labour-consuming
venture, the ICP had to be cautiously designed and carried out
in phase V to satisfy user needs by producing meaningful results
with the resources available.
Restricted availability of resources,
naturally, has made an impact on the outcome of phase V, particularly
in respect to the global results. The coordinating agencies
often decided to choose solutions that could realistically be
accomplished even if they had preferred a more favourable option
from a strictly technical point of view. The way of linking
the regional results of phase V is an example of such compromises,
as described in section IV,B.
Care was taken to avoid practices
that would seriously damage the reliability of results. However,
the most obvious limitations of the data, which should be kept
in mind when analysing ICP results, are described in the following
paragraphs, supplemented by selected references to other characteristics
that have already been taken up elsewhere in this report.
- Possibility of multiple
results
Users should not be perplexed
by the fact that international comparisons can lead to somewhat
divergent results. One source of differences can be the method
of conversion applied. The reasons why results obtained by
using official exchange rates for conversion are different
from PPP-based data, like those generated in the ICP, are
given in section 1. The chances of the incidence of multiple
results for certain countries grow if a number of com parisons
with overlapping country coverage are conducted, as has been
the case with the ICP in phase V It is important to recognize
that in PPP-based comparisons, even if no statistical inaccuracies
play a role, comparisons of countries can yield different
results depending on the number of countries involved in the
comparisons, that is, whether they are carried out in a binary
or in some multilateral (regional, continental, world-wide)
context. The application of the fixity principle aims at reducing
the consequences of the possible proliferation of results,
as explained in section IVB.
- The impact of aggregation
procedures
This report cannot review the
technical details pertaining to different aggregation procedures;
these can be found in the Handbook of the International
Comparison Programme and other ICP literature. In actual
practice, when prices for many hundreds of commodities, classifications
with over 250 expenditure categories and scores of countries
are involved in the work, the aggregation procedures are vastly
more complex than the illustrative examples in the brief methodological
references indicate.
Statisticians have developed
a number of procedures in answer to various problems encountered
in comparing countries. Differences in the aggregation procedures
apacross regions have arisen because alternative methodologies
typically offer various advantages for carrying out the calculations
and for interpreting their results. The results of the comparisons
are influenced by the choice of the aggregation method, such
as the Geary-Khamis formula and the EKS method. Generally,
statisticians do not claim absolute superiority for one method
over the other, in the sense that any one would give positively
"true" or preferable results for all comparisons
under all circumstances. The principal advantage of the G-K
method is that it produces additive results in accord with
standard national accounting practice. Having the property
of matrix consistency, the G-K results can be compared across
countries for any basic heading and will add up to the total
at any level of aggregation, unlike EKS or other non-additive
formulas which do not meet this requirement. As a matter of
fact, the matrix consistency of the G-K method must be given
up at the world level if the fixity principle is applied.
In phase V, for instance, fixity has been applied in a way
that the numbers do not add up to GDP, and comparisons across
the rows of tables I and 2 for countries of different regions
may have only limited analytical value. Regarding the choice
of aggregation methods, those experts who prefer the EKS method
generally argue that it uses a weighting system that accords
the same importance to each country, which may have more basis
in consumer theory. As a consequence, the use of the EKS system
leads to a less narrow range of real values than the one produced
by the G-K method. This may appear a desirable feature to
some; nevertheless, it should be preferred only by those who
do not consider additivity, which would make international
comparison results analogous to national accounts, an indispensable
property. In phase V the organizers of the various regional
comparisons have chosen either of these two formulas for aggregation
and, as a matter of fact, in most regions the G-K method was
applied in the 1985 round; however, this may not necessarily
be their choice for future rounds of the comparison.
In a similar manner, the choice
of the index formula (CPD or EKS) used in computing basic
parities will generate different estimates at the level of
the basic heading, though after the aggregations of the basic
headings the overall results are unlikely to be affected by
which method was selected. In summary, as the choices made
in the comparison work are considered judgements, users of
the data need to recall that the results could be influenced
by these choices. This influence not only adds to, but also
intertwines with, the complexities arising from the particular
survey framework utilized.
- Accuracy of the comparisons
No matter how sophisticated and
meticulous the mathematical techniques used for aggregation
or applied in the treatment of data are, the results of international
comparisons, at any rate, depend on the quality of the underlying
national data sets collected. This holds equally for the regional
and the global comparisons, since the processing work of the
latter was based on data compiled in the first place for the
purposes of regional studies.
It should be kept in mind that
the quality of national statistical information can vary.
Economic measurements themselves, such as GDP estimates, are
subject to some measurement error. Statisticians toil at reducing
the inaccuracies, which is a long and arduous process. Even
though there has been much progress in introducing international
statistical standards, such as the System of National Accounts
(SNA), into the national practices of countries, adherence
to these recommendations is not at the same level in all countries.
In addition, the ICP requires a breakdown of GDP expenditures
that is much more detailed than either the classification
applied by the SNA or the national practices of most countries.
Considering that countries need to estimate many of the expenditure
details which they report for ICP purposes, chances are that
the principles of methodology in reclassifying national data
across ICP expenditure groups might not be Strictly followed.
If this happens, it may introduce a certain degree of incomparability
in the basic data and, consequently, in the results. While
organizers of the regional comparisons had more possibilities
to correct this source of error, resources for eliminating
such incomparability among the regions for data at the global
level were extremely limited in phase V.
In responding to data-reporting
needs, many participating countries face a variety of economic
and social conditions within their borders. This is true of
huge countries, such as India or Canada; moreover, medium-sized
and smaller countries can also be characterized by internal
regional diversity (for example, the north and the south of
Italy) that should not be ignored when analysing ICP results.
Uniform ICP principles require each participating country
to report national average data; in general, this requirement
is well observed, but adherence to it may depend on the extent
of development of the national statistical system of individual
countries.
In spite of the care taken in
the regional work in the selection and matching of items to
be priced, as well a
as the reliance on close item
specifications in the actual pricing procedure, the data collected
might yield implausible conversion rates for certain commodities.
Most of the time regional organizers had a chance to reveal
and correct such inconsistencies. For some important expenditure
categories (typically, for services), the quality dif- across
countries could not always be captured; however, there were
such attempts, as in the case of the Group 11 comparison.
Similarly, other conditions, like the density of the network
of commercial facilities and the assortment or variety (the
number of sorts, colours, styles, sizes) of commodities, may
remain hidden behind the price differences between two countries.
One of the greatest challenges
in the application of ICP methods regarding PPP estimation
is how to balance the conflicting requirements of representativeness
and comparability in the item selection for pricing. Price
data collection in most countries is based on a large set
of specifications that countries usually maintain for compiling
their national consumer and producer price indices. The number
and composition of items or the detail of description applied
in the national specifications can be very different from
country to country, and against the backdrop of the ample
specification lists developed for regional comparison purposes
may turn out even less complete. The organization of comparisons
in the regional context offered a better opportunity to satisfy
both the requirement of representativeness and that of comparability
by means of thorough matching of representative items among
countries. In contrast, the global comparison effort has suffered
from the lack of direct communication among country experts
from different regions and coordinating staff in phase V.
Overall, apart from the potential
limitations arising from the quality of the national data,
comparing very different economies can constitute a further
source of limited comparability. Many experts believe that
the regionalization of be programme in phase V has contributed
to reducing this source of distortion, at least as far as
regional results are concerned. However, one should mention
that comparing very different economies within one region
(like, for example, Turkey and Sweden in the OECD, or Japan
and India in ESCAP, or Poland and Austria in Group 11) may
present difficulties because of a narrow range of comparable
goods available for pricing. Yet there are even more extensive
differences regarding consumption habits, expenditure patterns
or institutional arrangements among countries belonging to
different geographical areas, or among those that have reached
very different levels of economic development; therefore,
more efforts are needed to ensure improved interregional comparability.
- The effect of regionalization
on timeliness
The regionalization of the ICP
is believed to have positively contributed to a more timely
completion of the regional comparisons; on the other hand,
it implied a drawback lengthening the time-span of finalizing
the overall world-wide comparison. Some of the regional results
(e.g., EEC, OECD) became available very quickly, as early
as two years after the reference year of the comparison. To
complete comparisons in some other regions (e.g., ESCAP, Caribbean)
took a longer time and their work ended not much before 1992.
The approach adopted for linking regions to arrive at the
global comparison in 1985 did not allow for global processing
to begin before all regional results were finalized. In addition,
as described in section IVB, a number of anticipated, as well
as unexpected, difficulties in establishing the links came
up, causing long delays in generating globally interlinked
results. All in all, unfavourable conditions in phase V did
not help to break the tradition of the previous two phases
of the ICP, in which the world results became published about
seven years following the reference year. However, the organizers
learned many lessons that could be utilized in conducting
future rounds. The next round of the global ICP with reference
year 1993 and a preliminary participation of about 80 countries
is under way.
|