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Accounting for Unrepresentative Products and Urban-Rural Price Differences in International Comparisons of Real Income: An Application to the Asia-Pacific Region

  • Robert J. Hill

    ()

    ( Karl-Franzens University of Graz)

  • Iqbal A. Syed

    ()

    (University of New South Wales)

The International Comparisons Program (ICP) run by the World Bank compares the purchasing power of currencies and real income across countries. Using a unique data set consisting of over 600,000 ICP price quotes drawn from nine countries in the Asia-Pacific region, we consider a number of ways of improving the basic heading price indexes that form the building blocks of ICP. In particular, we show how the results can be adjusted to take account of unrepresentative products, urban-rural price differences and differing outlet-type mixes across countries. We also consider the plausibility of the most striking result that emerged from ICP 2005 – that China came out 40 percent smaller than previously thought. Our results suggest that part of this discrepancy can be attributed to excessive sampling in China of unrepresentative products in urban locations.

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File URL: http://www-classic.uni-graz.at/vwlwww/forschung/RePEc/wpaper/2012-07.pdf
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Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-07.

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Date of creation: Dec 2012
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Handle: RePEc:grz:wpaper:2012-07
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  1. Angus Deaton & Alan Heston, 2008. "Understanding PPPs and PPP-based national accounts," NBER Working Papers 14499, National Bureau of Economic Research, Inc.
  2. Gong, Cathy Honge & Meng, Xin, 2008. "Regional Price Differences in Urban China 1986-2001: Estimation and Implication," IZA Discussion Papers 3621, Institute for the Study of Labor (IZA).
  3. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
  4. World Bank, 2007. "World Development Indicators 2007," World Bank Publications, The World Bank, number 8150.
  5. Angus Deaton, 2010. "Price indexes, inequality, and the measurement of world poverty," Working Papers 1207, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  6. Ravallion, Martin & van de Walle, Dominique, 1991. "Urban-rural cost-of-living differentials in a developing economy," Journal of Urban Economics, Elsevier, vol. 29(1), pages 113-127, January.
  7. Shaohua Chen & Martin Ravallion, 2010. "The Developing World Is Poorer Than We Thought, but No Less Successful in the Fight Against Poverty," The Quarterly Journal of Economics, MIT Press, vol. 125(4), pages 1577-1625, November.
  8. Ravallion, Martin & Shaohua Chen, 2004. "China's (uneven) progress against poverty," Policy Research Working Paper Series 3408, The World Bank.
  9. Mick Silver, 2009. "The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations," IMF Working Papers 09/271, International Monetary Fund.
  10. Angus Deaton, 2005. "Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 1-19, February.
  11. Angus Deaton, 2005. "ERRATUM: Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 395-395, May.
  12. Abuzar Asra, 1999. "Urban-Rural Differences in Costs of Living and Their Impact on Poverty Measures," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(3), pages 51-69.
  13. Summers, Robert, 1973. "International Price Comparisons Based Upon Incomplete Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(1), pages 1-16, March.
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