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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.

29.27 Comparison of GDP per capita (GDP) and Price level

Source: The International Comparison Program, The World Bank.

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.