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Worldwide Data Collection: Purchasing Power

Worldwide Data Collection Effort To Enable Comparison Of Purchasing Power Across Countries

WASHINGTON, February 24, 2005 — How does China’s economic situation compare with that of its neighbors and trading partners? How much does a dollar buy in Indonesia compared with the U.S.? Is a person earning 250 nairas in Nigeria better or worse off than someone earning 9 pounds in Egypt? To answer these and other important questions about the welfare of people living in developing countries, the World Bank has launched a new round of international price data collection under the framework of the International Comparison Program (ICP).

The primary purpose of the ICP is to generate Purchasing Power Parity (PPP) data to convert GDP and its sub-aggregates-reported in different currencies—into a standard common currency that equalizes the real purchasing power of each of the currencies. PPP conversion rates permit comparison of real economic outputs across countries at a common set of average international prices. They are analogous to time-series indexes, which measure changes in national output over time at constant prices.

“The world’s largest-ever and most complex statistical price collection program is underway,” said Dennis Trewin, Australian Statistician and Chair of the ICP Executive Board. “Survey workers in over a hundred developing countries have either started or will soon be collecting price data for over a thousand selected products, including various kinds of food, clothing, and housing, among others.”

This massive exercise is being undertaken under the auspices of the World Bank in cooperation with national statistical offices and supported by regional and international development agencies. Planning of the data collection program began over a year ago. The results, available in 2006, will be combined with those from similar surveys undertaken by the Statistical Office of the European Union (Eurostat) and the Organization for Economic Cooperation and Development’s (OECD) Purchasing Power Parity Program. This exercise will enable economists, statisticians, and policymakers to make accurate comparisons of prices, purchasing power, and well being in more than 150 countries.

Purchasing power parities (PPP), calculated from data collected by the International Comparisons Program have been widely used to estimate absolute poverty measured at the international poverty line of $1 per person per day. PPP-adjusted GDP per capita estimates constitute an integral part of the United Nations Development Program’sUNDP’s Human Development Index. (HDI

“The International Comparison Program is at the forefront of our efforts to promote growth and fight poverty,” said François Bourguignon, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “Only by measuring real purchasing power, can we accurately shape our policies and work with the development community to help the neediest.”

Because they remove the distortions caused by market exchange rates, purchasing power parities allow more accurate comparisons of the size of national economies and their competitiveness.

“The ICP is a tremendous resource not just for governments,” said Fred Vogel, the ICP Global Manager, “but also for all those who have an interest in the global economy, including economic researchers, multinational companies and development agencies, all of which need accurate information on relative price levels and national incomes of various countries, in order to make sound and informed assessments, decisions or policy choices.”

The ICP’s global office is at the World Bank, but it relies on regional coordination offices to manage liaison with participating countries. These are located in the offices of the African Development Bank, the Asian Development Bank, the Statistical Committee of the Commonwealth of Independent States, the UN Economic Commission for Latin America and the Caribbean, Statistics Canada, the UN Economic and Social Commission for Western Asia, and at Eurostat and the OECD. The ICP data, once collected, will be made available in an integrated software system known as ICP Tool Pack, which will be distributed free of charge to all participating countries and regional coordination offices as a capacity building effort to improve the quality of both ICP and Consumer Price Index computations..

“In addition to improving the quality of data available to all countries, the ICP offers an opportunity to the partners to join the World Bank in helping developing countries improve their statistics-gathering capacity,” said Shaida Badiee, Director of the World Bank’s Data Group.

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