The Estimation of Item Specific Intra and Inter Country Food Purchasing Power Parities with Application to Cross Country Comparisons of Food Expenditure: India, Indonesia and Vietnam

This study introduces, for the first time, the concept of item specific purchasing power parity (PPP) between countries that marks a significant departure from exercises such as the International Comparison Program (ICP). The paper proposes a methodology for the estimation of the item specific PPPs both within and between countries based on an analogy with the estimation of preference based equivalence scales that have been proposed in the demographic demand literature. The usefulness of the proposed procedure is illustrated by applying it to estimate, in a unified framework, intra country PPPs (i.e. spatial prices) and inter country PPPs, both item wise and in aggregate, using unit records of household food expenditures from three Asian countries, namely, India, Indonesia and Vietnam, covering contemporaneous time periods. Formal tests of item invariance of the PPPs have been provided in this study. The results not only point to the usefulness of the concepts and procedures that have been proposed here, but they highlight the limitation of the twin assumptions of intra country constancy and item invariance of the PPPs that underline the ICP exercise. The item specific PPPs were used to provide a welfare ranking of India, Indonesia and Vietnam. As the ICP 2011 is currently under way, the significance of the present results extends well beyond the three Asian countries considered in this study.