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Sensitivity of Purchasing Power Parity Estimates to Estimation Procedures and their Effect on Living Standards Comparisons

  • Amita Majumder , Ranjan Ray EMAIL logo and Sattwik Santra
Published/Copyright: October 25, 2017

Abstract

The motivation of this exercise is to compare the Purchasing Power Parities (PPPs) calculated using different procedures and study the sensitivity of global rankings of regions based on living standards to the PPPs used. The empirical comparison involves the GEKS, weighted CPD, GK, EWGK and the True Cost of Living Index (TCLI) based PPP estimation procedures with the Indian Rupee used as the numeraire currency. The published ICP PPPs for 2011 are used as benchmark for the non ICP PPPs obtained in this study. Evidence confirming the “Gershenkeron effect,” that affects the additive GK procedure, is provided. The results suggest that the EWGK PPPs, which are also additive, do not suffer from the extent of bias of the GK PPPs. The paper also provides evidence on the large variation in the TCLI based PPPs across expenditure quintiles originating from variation in preferences between expenditure classes. This suggests departure from the current ICP practice of providing one PPP for the entire country and points to the need to estimate PPPs by different expenditure classes. The empirical evidence points to the rich potential for the rarely used TCLI in future PPP calculations.

JEL Classification: C430; D63; E31; I31

Acknowledgements

We are grateful to the ICP for making available the necessary price and expenditure information for the countries participating in the ICP, 2011 round. Helpful comments from the Editor, a referee, and from participants and discussants of our presentations of earlier versions in several conferences are gratefully acknowledged. The usual disclaimer applies.

Appendix

Table 4:

Alternative Purchasing Power Parities (PPPs) for 2011 (Numeraire: Indian Rupee).

RegionCountryICPCPDGEKSGKEWGK
AfricaAlgeria2.0621.9811.9321.8491.918
Angola4.9963.4472.9732.8873.120
Benin14.80111.23111.20213.00115.657
Botswana0.2900.2540.2620.2990.304
Burkina Faso14.55212.52713.84114.14615.521
Burundi31.13030.51830.49428.25140.526
Cameroon15.25313.64111.70611.70314.629
Cape Verde3.1642.4202.1802.7551.866
Central African Republic17.41917.95318.33018.42121.201
Chad16.49914.82915.21615.73316.970
Comoros14.36012.24910.7487.9719.864
Congo, Dem. Rep.35.14535.07039.59941.12145.088
Congo, Rep.19.71119.25618.88919.21519.092
Côte d’Ivoire15.69115.51412.71311.87713.340
Djibouti6.7276.5666.7337.6479.314
Egypt, Arab Republic0.1150.1010.1090.1180.108
Equatorial Guinea21.71214.82414.53612.09010.372
Ethiopia0.3520.3400.3610.3790.481
Gabon23.87722.52121.77824.42724.763
Gambia, The0.6970.6800.6910.6860.724
Ghana0.0510.0440.0460.0470.046
Guinea165.403182.576199.346223.605278.301
Guinea-Bissau15.82717.38216.99515.99918.574
Kenya2.3651.9591.9522.0322.179
Lesotho0.2610.2220.2310.2470.263
Liberia0.0370.0310.0310.0280.029
Madagascar46.30934.21734.87332.57235.607
Malawi5.1954.8675.3765.6737.415
Mali14.43713.73514.19314.17814.593
Mauritania7.3956.1636.4096.5838.464
Mauritius1.1810.9691.0371.1700.986
Morocco0.2760.2770.3220.3520.362
Mozambique1.0510.9931.0111.0501.114
Namibia0.3420.2700.1360.0770.027
Niger14.99515.43118.04516.95617.552
Nigeria5.1844.4644.9124.9585.220
Rwanda16.71714.65212.80311.19614.121
Senegal16.28516.64317.19717.89220.411
Seychelles0.4990.4900.5170.6000.568
Sierra Leone114.179106.962107.708104.37878.115
South Africa0.3400.2990.3340.3740.344
Sudan0.0960.0830.0980.1130.133
Swaziland0.2730.1890.2050.2470.262
São Tomé and Principe649.078617.702614.993714.779838.209
Tanzania38.49435.04238.53535.69240.833
Togo14.96615.01115.46116.02216.518
Tunisia0.0450.0440.0450.0530.047
Uganda61.98965.10359.76359.93271.503
Zambia166.554156.330161.138185.421220.414
Zimbabwe0.0350.0330.0350.0380.045
Asia and the PacificBangladesh1.6281.5191.5191.7541.774
Bhutan1.1190.9650.9361.0651.147
Brunei Darussalam0.0580.0510.0440.0410.036
Cambodia96.71289.07991.30899.56588.625
China0.2490.2320.2570.3000.290
Fiji0.0800.0620.0590.0660.059
Hong Kong SAR, China0.3980.3170.3880.4110.347
India1.0001.0001.0001.0001.000
Indonesia266.380246.329230.556278.434259.144
Lao PDR181.329167.919164.455161.476160.084
Macao SAR, China0.3740.2910.3160.3630.312
Malaysia0.1060.0900.0570.0420.040
Maldives0.6770.5290.5240.6690.574
Mongolia36.88135.52731.45835.47038.521
Myanmar16.38014.2786.1643.0641.112
Nepal1.6981.0650.9910.9210.694
Pakistan1.6731.4561.2121.0301.110
Philippines1.2610.9500.7290.6330.476
Singapore0.0800.0600.0760.0710.054
Sri Lanka2.6892.6452.3392.4662.249
Taiwan, China1.0810.9940.9511.0210.788
Thailand0.8580.6440.6830.6770.599
Vietnam479.060394.883363.134380.955309.393
Commonwealth and Independent StatesArmenia10.88012.29811.83614.40115.271
Azerbaijan0.0200.0230.0220.0230.024
Belarus109.735123.162114.905134.098126.719
Kazakhstan5.0374.2014.1225.1224.608
Kyrgyzstan1.0370.9440.9011.0421.129
Moldova0.3280.3250.3430.3770.371
Russian Federation1.0591.0480.9951.1871.127
Tajikistan0.1060.1090.1050.1030.102
Ukraine0.2040.2090.2130.2500.252
Eurostat-OECDAlbania3.4003.1803.1323.5463.738
Australia0.1070.0790.0790.0890.080
Austria0.0610.0460.0460.0530.051
Belgium0.0630.0450.0410.0490.043
Bosnia and Herzegovina0.0550.0570.0560.0610.063
Bulgaria0.0470.0480.0490.0570.053
Canada0.0910.0700.0680.0760.071
Chile25.22223.71823.18327.15024.908
Croatia0.2840.2650.2800.3410.330
Cyprus0.0500.0430.0460.0510.051
Czech Republic0.9600.8260.8200.9920.973
Denmark0.6030.4500.4430.5380.495
Estonia0.0380.0350.0320.0390.039
Finland0.0680.0550.0590.0690.064
France0.0610.0470.0490.0580.052
Germany0.0560.0430.0430.0510.044
Greece0.0510.0440.0450.0530.053
Hungary8.6517.9107.8639.6919.177
Iceland9.6778.7229.29310.62110.570
Ireland0.0670.0470.0450.0580.052
Israel0.2880.2140.2130.2510.205
Italy0.0570.0480.0470.0580.050
Japan7.7896.5886.5156.8996.215
Korea, Rep.60.66952.18642.56844.51833.444
Latvia0.0250.0230.0240.0310.027
Lithuania0.1120.1140.1180.1400.139
Luxembourg0.0750.0470.0470.0560.048
Macedonia, FYR1.3921.3661.4551.6961.707
Malta0.0410.0390.0400.0470.044
Mexico0.5490.4940.5030.6090.573
Montenegro0.0280.0260.0270.0300.030
Netherlands0.0620.0440.0430.0520.043
New Zealand0.1050.0840.0840.0950.092
Norway0.7060.6140.5820.6950.638
Poland0.1240.1060.1120.1370.124
Portugal0.0480.0400.0400.0490.043
Romania0.1200.1150.1110.1350.128
Russian Federation1.0591.0480.9951.1871.127
Serbia2.8022.8992.8273.4233.295
Slovakia0.0360.0350.0350.0420.041
Slovenia0.0470.0410.0400.0470.045
Spain0.0530.0400.0400.0510.045
Sweden0.6590.4730.4590.5610.523
Switzerland0.1140.0740.0690.0880.076
Turkey0.0720.0710.0710.0810.078
United Kingdom0.0520.0390.0410.0500.046
United States0.0710.0550.0560.0660.049
Latin AmericaBolivia0.2000.1780.1790.1350.148
Brazil0.1060.1040.1340.1390.135
Colombia81.83671.60483.55994.57187.551
Costa Rica24.40420.98318.93424.79020.130
Dominican Republic1.3791.2451.2481.2471.227
Ecuador0.0370.0330.0310.0310.031
El Salvador0.0360.0340.0320.0300.029
Guatemala0.2610.2020.1660.2050.122
Haiti1.4260.9721.2511.2901.344
Honduras0.7060.6160.6110.5500.527
Nicaragua0.6130.5400.4680.4400.337
Panama0.0370.0350.0380.0400.040
Paraguay155.704152.030158.318175.657178.821
Peru0.1040.0930.0970.1000.096
Uruguay1.1080.9550.8361.1330.895
Venezuela, RB0.1940.2270.2010.1960.172
The CaribbeanAnguilla0.1680.1410.1240.1480.104
Antigua and Barbuda0.1380.1160.1140.1070.087
Aruba0.1060.0940.1060.1270.121
Bahamas, The0.0760.0510.0600.0770.061
Barbados0.1600.1110.1280.1840.162
Belize0.0790.0710.0540.0570.047
Bermuda0.1260.0800.0920.1070.095
Cayman Islands0.0750.0670.0750.0930.093
Curaçao0.0950.0910.1030.1140.110
Dominica0.1370.1250.1170.1230.118
Grenada0.1360.1240.1200.1370.144
Jamaica4.1364.3774.0554.5814.817
Montserrat0.1530.1390.1390.1570.152
St. Kitts and Nevis0.1080.0970.0980.1490.138
St. Lucia0.1370.1430.1310.1380.137
St. Vincent and the Grenadines0.1390.1190.1160.1310.119
Suriname0.1320.1250.1220.1260.123
Trinidad and Tobago0.1220.1220.1200.3190.349
Turks and Caicos Islands0.2990.2980.3000.0650.051
Virgin Islands, British0.0850.0520.0550.0690.068
Western AsiaBahrain0.0150.0130.0110.0130.011
Egypt, Arab Republic0.1150.1010.1090.1180.108
Iraq35.88236.46536.85647.53651.304
Jordan0.0210.0210.0220.0240.026
Kuwait0.0130.0110.0110.0130.013
Oman0.0140.0140.0150.0160.016
Palestinian Territory0.1590.1300.1320.1320.129
Qatar0.2040.1500.1710.2480.251
Saudi Arabia0.1300.1200.1260.1450.151
Sudan0.0960.0830.0980.1130.133
United Arab Emirates0.1980.1470.1720.2270.227
Yemen5.3195.1535.3725.8855.741

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Published Online: 2017-10-25

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