IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/20244.html
   My bibliography  Save this paper

Trying to Understand the PPPs in ICP2011: Why are the Results so Different?

Author

Listed:
  • Angus Deaton
  • Bettina Aten

Abstract

Purchasing power parity exchange rates, or PPPs, are price indexes that summarize prices in each country relative to a numeraire country, typically the United States. These numbers are used to compare living standards across countries, by academics in studies of economic growth, particularly through the Penn World Table, and in some cases, to allocate resources. The International Comparison Program (ICP) collects the detailed prices on which these indexes are based on an irregular basis. In 2014, the ICP published PPPs from the 2011 round that are sharply different from those that were expected from extrapolation of the previous round, ICP 2005. These discrepancies will eventually have important implications for the Penn World Table, and for international comparisons of living standards. The world according to ICP 2011 looks markedly more equal than calculated from ICP 2005. This paper investigates why this happened. We identify a likely source of the problem in the way that the regions of the ICP were linked in 2005. We use two different methods for measuring the size of the effect. Both suggest that the 2005 PPPs for consumption for countries in Asia (excluding Japan), Western Asia, and Africa were overstated relative to the US by between 18 to 26 percent.

Suggested Citation

  • Angus Deaton & Bettina Aten, 2014. "Trying to Understand the PPPs in ICP2011: Why are the Results so Different?," NBER Working Papers 20244, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20244
    Note: DEV EFG IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w20244.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Hill, 2004. "Constructing Price Indexes across Space and Time: The Case of the European Union," American Economic Review, American Economic Association, vol. 94(5), pages 1379-1410, December.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    3. Johnson, Simon & Larson, William & Papageorgiou, Chris & Subramanian, Arvind, 2013. "Is newer better? Penn World Table Revisions and their impact on growth estimates," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 255-274.
    4. Robert Inklaar & D. S. Prasada Rao, 2017. "Cross-Country Income Levels over Time: Did the Developing World Suddenly Become Much Richer?," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 265-290, January.
    5. World Bank, 2011. "World Bank for Results 2011," World Bank Publications - Books, The World Bank Group, number 15792, December.
    6. Angus Deaton & Olivier Dupriez, 2011. "Purchasing Power Parity Exchange Rates for the Global Poor," American Economic Journal: Applied Economics, American Economic Association, vol. 3(2), pages 137-166, April.
    7. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    8. Angus Deaton, 2010. "Price Indexes, Inequality, and the Measurement of World Poverty," American Economic Review, American Economic Association, vol. 100(1), pages 5-34, March.
    9. Martin Ravallion, 2013. "Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 593-613, December.
    10. Asian Development Bank (ADB), 2014. "Purchasing Power Parities and Real Expenditures," ADB Reports RPT146710-2, Asian Development Bank (ADB), revised 19 Aug 2014.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert Inklaar & D. S. Prasada Rao, 2017. "Cross-Country Income Levels over Time: Did the Developing World Suddenly Become Much Richer?," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 265-290, January.
    2. Martin Ravallion, 2016. "Toward better global poverty measures," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(2), pages 227-248, June.
    3. Amita Majumder & Ranjan Ray & Kompal Sinha, 2014. "A Unified Framework for the Estimation of Intra and Inter Country Food Purchasing Power Parities with Application to Cross Country Comparisons of Food Expenditure: India, Indonesia and Vietnam," Monash Economics Working Papers 31-14, Monash University, Department of Economics.
    4. Oulton, Nicholas, 2015. "Space-time (in)consistency in the national accounts:causes and cures," LSE Research Online Documents on Economics 62569, London School of Economics and Political Science, LSE Library.
    5. Paul Johnson & Chris Papageorgiou, 2020. "What Remains of Cross-Country Convergence?," Journal of Economic Literature, American Economic Association, vol. 58(1), pages 129-175, March.
    6. Ravallion, Martin, 2018. "An exploration of the changes in the international comparison program’s global economic landscape," World Development, Elsevier, vol. 105(C), pages 201-216.
    7. Robert Inklaar, 2013. "“Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes”: A Comment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 614-622, December.
    8. Oulton, Nicholas, 2015. "Understanding the space–time (in)consistency of the national accounts," Economics Letters, Elsevier, vol. 132(C), pages 21-23.
    9. Ingvild Almås & Timothy K.M. Beatty & Thomas F. Crossley, 2018. "Lost in Translation: What do Engel Curves Tell us about the Cost of Living?," CESifo Working Paper Series 6886, CESifo.
    10. Hassan, Fadi, 2016. "The price of development: The Penn–Balassa–Samuelson effect revisited," Journal of International Economics, Elsevier, vol. 102(C), pages 291-309.
    11. Angus Deaton, 2016. "Measuring and Understanding Behavior, Welfare, and Poverty," American Economic Review, American Economic Association, vol. 106(6), pages 1221-1243, June.
    12. Francisco H. G. Ferreira & Shaohua Chen & Andrew Dabalen & Yuri Dikhanov & Nada Hamadeh & Dean Jolliffe & Ambar Narayan & Espen Beer Prydz & Ana Revenga & Prem Sangraula & Umar Serajuddin & Nobuo Yosh, 2016. "A global count of the extreme poor in 2012: data issues, methodology and initial results," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(2), pages 141-172, June.
    13. Brückner, Markus & Gradstein, Mark, 2013. "Effects of transitory shocks to aggregate output on consumption in poor countries," Journal of International Economics, Elsevier, vol. 91(2), pages 343-357.
    14. Angus Deaton, 2010. "Understanding the Mechanisms of Economic Development," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 3-16, Summer.
    15. Peter Edward & Andy Sumner, 2015. "New estimates of global poverty and inequality: How much difference do price data," Working Papers 365, ECINEQ, Society for the Study of Economic Inequality.
    16. Robert Hill & Daniel Melser, 2015. "Benchmark averaging and the measurement of changes in international income inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(4), pages 767-801, November.
    17. Alan Heston & D.S. Prasada Rao, 2021. "Price Levels, Size, Distribution and Growth of the World Economy: Insights from recent International Comparisons of Prices and Real Product," PIER Working Paper Archive 21-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    18. Moatsos Michail, 2016. "Global Absolute Poverty: Behind the Veil of Dollars," Journal of Globalization and Development, De Gruyter, vol. 7(2), pages 1-28, December.
    19. Majumder,Amita & Ray,Ranjan & Santra,Sattwik, 2015. "Preferences, purchasing power parity, and inequality : analytical framework, propositions, and empirical evidence," Policy Research Working Paper Series 7395, The World Bank.
    20. Stahler Kevin & Subramanian Arvind, 2014. "Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework," Journal of Globalization and Development, De Gruyter, vol. 5(2), pages 129-176, December.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F00 - International Economics - - General - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:20244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.