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Contents >> Prices >> 2005 International Comparison Program (Article)

FEATURE ARTICLE 2: 2005 INTERNATIONAL COMPARISON PROGRAM


INTRODUCTION TO PURCHASING POWER PARITIES

The International Comparison Program (ICP) is a worldwide statistical initiative to collect comparative price data and estimate the purchasing power parities (PPPs) of the world’s economies. PPPs are currency conversion rates that both convert to a common currency and equalise the purchasing power of different currencies. In other words, they eliminate the differences in price levels between countries in the process of conversion.

The standard method of converting the output or expenditures, measured in the local currency of one economy, to a common unit of account for comparison or aggregation with that of other economies has been to use market exchange rates. However, market exchange rates are determined by the demand for, and supply of, currencies used in international transactions. They do not necessarily reflect differences in price levels and may therefore understate or overstate the real value of an economy’s output and the standard of living of its residents. Using PPPs instead of market exchange rates to convert currencies makes it possible to compare the output of economies and the economic welfare of their inhabitants in real terms (that is, controlling for differences in price levels).


2005 PPP Program

The 2005 International Comparison Program brought together two separate PPP programs. The first was the global ICP program conducted by the ICP global office within the World Bank, which provided overall coordination for the collection of data and calculation of PPPs in more than 100 (mostly developing) economies. The second was conducted by the Statistical Office of the European Communities (Eurostat) and the Organisation for Economic Co-operation and Development (OECD), which comprised 46 (mostly OECD member) economies. The ICP global office has combined the results with those from the OECD-Eurostat PPP program into an overall global comparison, so that results for all participating economies could be compared directly.

The ABS played a significant and leading role in both 2005 PPP programs. Former Australian Statistician Dennis Trewin chaired the 2005 ICP Executive Board, which was the overall policy making body for the ICP. Other ABS staff were members of the ICP Executive Board and Technical Advisory Group. The ABS also provided technical support to the Asia ICP region, which played a significant role in the success of the ICP and set an example for partnering that was recognized by the UN Statistical Commission. Of particular note was the participation of China in the ICP for the first time, and India for the first time since 1985. The Asia ICP provided essential information about the emergence of the Asian economy and updated the important measures of poverty.

The OECD-Eurostat PPP program involved the ABS collecting prices in the Australian community for the items included in the PPP basket. This included around 3000 consumer goods and services, 30 occupations in government, education and health services, around 180 types of equipment goods and 15 construction projects.


Results

Table 29.26 provides a summary of the results from the 2005 ICP for the OECD/Eurostat countries. Adjusted using PPP, Australia had a higher GDP per capita (US$32,798) compared to the OECD-Eurostat average (US$26,404). Luxemburg had the highest GDP per capita (US$70,014), while Albania had the lowest (US$5,369). In comparison, Australia had a higher GDP per capita than New Zealand (US$24,554) and the United Kingdom (US$31,580). Australia had a lower GDP per capita compared to the United States (US$41,674) and Canada (US$35,078).

When comparing the two GDP per capita figures for Australia, when adjusted using the U.S. exchange rate, Australia's GDP per capita (US$34,774) was overstated compared to when it was adjusted using PPP (US$32,798). This was a result of the higher price level in Australia (106) when compared to the U.S. (100).

Australia's price level of 106 means its purchasing power in $US was slightly less than the U.S. (100). Compared to other countries, Australia had a lower price level than the United Kingdom (118) and New Zealand (108), and a higher price level than Canada (100).

For those countries with a price level less than 100, this resulted in their GDP per capita (adjusted using $US) being understated compared to their GDP per capita when adjusted using PPP. The opposite was true for countries with a price level greater than 100.


29.26 2005 ICP Results: Comparison of OECD-EUROSTAT Countries

Price level per Capita

Price level

PPP
$US
US=100

Australia
32 798
34 774
106
Albania
5 369
2 587
48
Austria
34 108
37 056
109
Belgium
32 077
35 852
112
Bosnia and Herzegovina
6 506
3 007
46
Bulgaria
9 353
3 525
38
Canada
35 078
35 133
100
Croatia
13 232
8 749
66
Cyprus
24 473
22 359
91
Czech Republic
20 281
12 190
60
Denmark
33 626
47 793
142
Estonia
16 654
10 341
62
Finland
30 469
37 262
122
France
29 644
34 008
115
Germany
30 496
33 849
111
Greece
25 520
22 285
87
Hungary
17 014
10 962
64
Iceland
35 630
54 975
154
Ireland
38 058
48 405
127
Israel
23 845
19 749
83
Italy
27 750
30 195
109
Japan
30 290
35 604
118
Korea, Republic of (South)
21 342
16 441
77
Latvia
13 218
7 035
53
Lithuania
14 085
7 530
53
Luxembourg
70 014
80 315
115
Former Yugoslav Republic of Macedonia
7 393
2 858
39
Malta
20 410
14 605
72
Mexico
11 317
7 401
65
Montenegro
7 833
3 564
45
Netherlands
34 724
38 789
112
New Zealand
24 554
26 538
108
Norway
47 551
65 267
137
Poland
13 573
7 965
59
Portugal
20 006
17 599
88
Romania
9 374
4 575
49
Russian Federartion
11 861
5 341
45
Serbia
8 609
3 564
41
Slovakia
15 881
8 798
55
Slovenia
23 004
17 558
76
Spain
27 270
26 031
95
Sweden
31 995
39 621
124
Switzerland
35 520
49 675
140
Turkey
7 786
5 013
64
United Kindom
31 580
37 266
118
United States of America
41 674
41 674
100
OECD-Eurostat average
26 404
26 191
99

Source: The International Comparison Program, The World Bank.


Using the results from table 29.26, graph 29.27 shows the relationship between the price level and GDP per capita. There was a clear, positive relationship, whereby those countries with a low level of GDP per capita generally had a lower price level, while countries with a higher level of GDP per capita generally had a higher price level.

29.27 Comparison of GDP per capita (GDP) and Price level
Graph: 29.27 Comparison of GDP per capita (GDP) and Price level
Source: The International Comparison Program, The World Bank.

Table 29.28 compares the per capita GDP figures and the price level for countries from the Asia-Pacific region with Australia. Australia had one of the highest per capita GDPs in the region, which was around nine times the Asia-Pacific average. When compared to the World average, it was more than 3 times higher. Australia's GDP per capita (US$32,798) remains below countries such as Brunei (US$47,465), Singapore (US$41,479) and Hong Kong (US$35,680).

Emerging countries such as China (US$4,091) and India (US$2,126) still had a significant difference between their GDP per capita levels compared to Australia.

Australia's price level index of 106 was also higher than the Asia-Pacific average (41) and the World average (81). Compared to countries in the Asia-Pacific region, Australia was the only country to have a price level index greater than 100. The next highest was Fiji, with a price level index of 85.

29.28 2005 ICP Results: Comparison of Asia-Pacific Countries

GDP per Capita

Price level

PPP
$US
USA=100

Australia
32 798
34 774
106
Bangladesh
1 268
446
35
Bhutan
3 694
1 318
36
Brunei Darassalam
47 465
25 754
54
Cambodia
1 453
454
31
China (excludes SAR, Taiwan Province)
4 091
1 721
42
Hong Kong (SAR of China)
35 680
26 094
73
Macao (SAR of China)
37 256
24 507
66
Taiwan
26 069
15 674
60
Fiji
4 209
3 558
85
India
2 126
707
33
Indonesia
3 234
1 311
41
Iran,
10 692
3 190
30
Laos
1 811
508
28
Malaysia
11 466
5 250
46
Maldives
4 017
2 552
64
Mongolia
2 643
915
35
Nepal
1 081
343
32
Pakistan
2 396
769
32
Philippines
2 932
1 158
39
Singapore
41 479
26 879
65
Sri Lanka
3 481
1 218
35
Thailand
6 869
2 721
40
Vietnam
2 142
637
30
Asia-Pacific average
3 592
1 462
41
WORLD average
8 971
7 230
81

Source: The Internatonal Comparison Program, The World Bank.



REFERENCE

<http://www.web.worldbank.org>

World Bank International Comparison Program



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