Poverty Board Meeting, Washington DC March 2nd, 2010

Part I Introduction and Background 2

3 The International Comparison Program A worldwide statistical initiative to collect comparative price data and estimate purchasing power parities (PPPs) of the world’s economies. What is the ICP? Provide international price and volume comparisons of Gross Domestic Product (GDP) and its component expenditures. Measure the differences in price and volume levels of GDP expenditures: between countries within a region, and between countries in different regions. Overall Objectives

Number of countries participating Africa52 Asia23 Pacific5 ? LAC33 West. Asia14 CIS11 OECD- Eurostat 48 China 11 cities in 2005Whole country in 2011 Historical Global ICP Participation 4

OECD-EUROSTAT ICP Governance Structure UNSC Executive Board Global Office: Global Manager + Staff World Bank TAG AfDBADBCISECLACESCWAOECDE/STAT Countries Regional Advisory Boards 5

6 Preliminary Global & Regional Budgets Global Africa (1) Asia - Pacific3 200 CIS LAC4 683 W. Asia2 163 Total (000’ USD) (1): A large part is for capacity building and technical assistance

7 What did we learn from 2005? Conducted by Norway All countries and regional coordinating agencies were surveyed ICP 2005 in general was announced as a huge success by the evaluation and the UNSC's 39th session in 2008 Detailed Evaluation of ICP 2005 We learned about the effective governance structure & principles In 2005, the roles of the various players were better defined than in any previous round Several methodological aspects were improved And…

 Framework  Partnership w/ OECD-EUROSTAT  Other Partnership Arrangements  Agreements  Country Participation 2005 Effective Governance Structure & Principles Governance  Mutual trust  Coordination mechanisms  Transparency  Pursuit of quality  Regular communication Agreed Principles  Objectives  Work plan  Agreed timetable Strategy 8

In 2005, the Roles of ICP Players Were Better Defined than in any Previous Round  Global Coordination  OECD-EUROSTAT program  Regional Coordination  Country Coordination Coordination Levels  UNSC  Executive Board  Increased authority of Global Manager on decisions about methodology Decision Making Levels  Policy: UNSC; EB  EB members: institutions not individuals  World Bank: Host institution  Technical: TAG; GO; OECD/EUROSTAT  Regional coordinators  Participating countries Roles & Responsibilities 9

Part II The ICP 2011 Round 1. Leveraging on the 2005 Round 2. Areas of Emphasis and Methodological Improvements 3. Objectives and Strategies 4. The PPP Calculation Process 5. ICP Research Agenda 6. Using PPPs in the Bank 7. Poverty PPPs 8. ICP 2011 Timetable 10

11 How will 2011 Round differ from 2005 Round? 1. The 2011 benchmark is closer to the previous one than was the case between the 2005 and the The larger the number of countries the better the global results 3. Most Latin America and Caribbean countries were not included in the previous surveys 4. Four additional countries will participate in Africa [Algeria; Libya; Eritrea; Seychelles] 5. China will collect prices nationwide instead of 11 cities [as in 2005] 6. Size and structure of economies have changed, mostly due to global financial and food crises

ICP 2005 Assets which the New Round will Build on Human resources Methodological resources Data validation methods Statistical standards Regional lists of products Survey frameworks Main resources developed in 2005 National workshops Regional workshops with countries for capacity building and data review Global workshops with regions for method harmonization and data review Participatory Approach: Result-Oriented Workshops 12

13 Implement UNSC Recommendations Meet Users’ Needs and reach out to Users Meet Global Demand for PPP-adjusted Statistics Objectives and Strategies for 2011 Round Objectives PPP results at regional level for 2011 PPP results at global level for 2011 Poverty PPPs Main results Improved GDP expenditures statistics Improved methodologies Learning material and ICP book ICP Data Quality Framework ICP software suite ICP databases and metadata repositories Other results

14 Main Program Areas ` Use Existing Methods Improve Implementatio n Tools Develop New Method Develop Core Items List Data & Metadata Process Quality Framework 1. Consumption price survey 2. Compensation of employees 3. Public health services 4. Private health services 5. Pharmaceutical products 6. Public education services 7. Private education 8. Housing 9. Equipment 10. Construction 11. GDP Expenditures

15 1. A comprehensive outreach strategy 2. An ICP quality assurance framework 3. A statistical capacity building strategy 4. An ICP Book titled “Measuring the Size of the World Economy” 5. A National Accounts framework for ICP 6. A system of economic validation of price and expenditure data 7. A new method to compute global PPPs 8. Continuous improvements in ICP methodologies Areas of Emphasis

16 Methodological Improvements for 2011 A 600-item Global Core List for household consumption, equi-representative of all the regions Global core list for household consumption included in regional lists All countries in the world price the global core list items Equipment list equally representative across the regions and OECD-Eurostat countries Most Robust Linking Method Improved Quality of National Accounts & Prices New National Accounts framework Improved GDP expenditures Field prices expected to be more consistent with national- accounts-embedded prices A comprehensive quality assurance framework being finalized Improvements in other areas Improved methods for health and education A new method being designed for construction A 10-topic research agenda being pursued

17 Improved ICP Survey Frameworks Survey frameworks will be designed to generate average prices by category of outlets as well as urban and rural area Outlet Categories Urban/ Capital city Urban/ Regional cities Rural Areas 1Supermarkets, hypermarkets, and department stores 2Minimarkets, kiosks, neighborhood shops, and grocery stores 3Markets (Open markets, covered markets, and wet markets) 4Mobile shops and street vendors 5Discount shops 6Specialised shops 7Private service providers 8Public or semi-public service providers 9Internet and catalogue orders Price Type RRegular Price SSale Price BBargained Price

Number of units of a country’s currency that have the same purchasing power in the country as one unit of the base currency has in the base country. It is in essence average of ratios of prices of comparable items, using GDP expenditure weights where appropriate. What are PPPs? Using PPPs instead of market exchange rates makes it possible to compare the output of economies and the welfare of their inhabitants in real terms. PPPs Vs Exchange Rates PPP Definition Real comparisons of GDP between countries free of price differences. Comparisons of price levels across countries and groups of products. PPPs Allow Comparisons 18

Country 1…Country n Price Surveys … National Accounts … Country 1…Country n Price Surveys … National Accounts … Country 1…Country n Price Surveys … National Accounts … Country 1…Country n Price Surveys … National Accounts … Country 1…Country n Price Surveys … National Accounts … Country 1…Country n Price Surveys … National Accounts … Region 5 PPPs GDP Expendi- tures Region 4 PPPs GDP Expendi- tures Region 3 PPPs GDP Expendi- tures Region 2 PPPs GDP Expendi- tures Region 1 PPPs GDP Expendi- tures OECD Eurostat PPPs GDP Expendi- tures WORLD Global PPPs PPP Adjusted GDPs SURVEY TYPES: Household Consumption Health Education Government Occupations Equipment Construction How PPPs are calculated? 5 ICP Regions OECD- Eurostat 19

20 How PPPs are calculated? Countries are compared first within a region & then linked to produce globally consistent results There are six regions in the world. They are linked by the “Core List” method whereby, in addition to their regional list, all the countries are requested to price the same Global core items GDP is divided into 155 or more “Basic Headings” For each basic heading every region chooses a sample of items. The items must be comparable & at the same time representative of expenditures of at least 2 countries A regional list of items is agreed upon in round table negotiations. Countries conduct price surveys & provide the Regional Coordinator annual average prices for the base year for as many items as they can from the regional list They also provide GDP expenditures for the reference year 2011 broken down to 155 basic headings The Regional Coordinator calculates PPPs in terms of a regional currency The Global Office computes linking factors based on prices for the Global core list The Global Office then computes PPPs for the regional currencies in terms of a global currency, say the US dollar, converts all regional PPPs into this global currency & publishes the global results

21 AfDBADBCISECLACESCWA ICP Global Office at World Bank PRICES & GDP EXP. OECD - EUROSTAT PPPS + CORE PRICES Flow of Data Global PPPS CORE PRICES + REGIONAL PPPs 52 Countries28 Countries11 Countries14 Countries PRICES & GDP EXP. PRICES & GDP EXP. PRICES & GDP EXP. PRICES & GDP EXP. PRICES & GDP EXP. 48 Countries33 Countries OECD EUROSTAT

Number of Consumption Items to be Priced by the Countries Category From Regional List From Global Core List 01 - Food and non-alcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Housing and utilities Furnishing & household equipment Health Transportation Communication Recreation and Culture Education Restaurants Misc goods and services3621 Total Monthly or quarterly price collections throughout

23 International poverty headcount index (World Bank) Comparing relative sizes of economies and estimating weighted averages of regional growth rates (IMF) Allocation of structural and cohesion funds (European Commission) Human Development Index (UNDP) Gender empowerment measures (UNDP) Health inequality assessment (World Health Organization) Assessing per capita expenditures in education (U.N. Educational, Scientific and Cultural Organization) Monitoring the welfare of children (U.N. Children’s Fund) Designing effective aid programs (International Organizations) Analysis of an economy’s comparative advantage on prices and expenditures of goods or services (Policy Makers) Evaluation of investment costs and industry growth potential across countries. PPP adjusted cost of living allowances (Multinational Corporations, Non- Government Organizations, International Development Agencies) Major Uses of PPPs by International Organizations

Main uses of ICP data Poverty analysis – requires average price data with some disaggregation by region, by outlet types, and by urban/rural Research to improve ICP methodology, including aggregation methods – requires access to more detailed data Cost comparisons across countries in areas such as public sector wages, health, and education, to support policy analysis – requires disaggregated average price, quantity, and wage data and metadata Research into the price behavior of tradable goods and services – requires average price data Micro data (individual observations) National annual average prices Disaggregated annual average prices PPPs, PLIs, and expenditure data for unpublished categories (Basic Headings being the lowest) PPPs, PLIs, and expenditure data for published analytical categories Population and exchange rate data Metadata Types of ICP data Uses of PPPs by Researchers 24

25 10 TOPICSTAG Recommendations 1Owner-occupied housingApproach identified 2Financial servicesSolutions adopted 3Measurement of government outputsOngoing research 4Survey frameworksApproach identified 5Exports and imports and net purchases abroad Solutions adopted 6Linking regional PPPs into global resultsOngoing research 7Construction PPPsOngoing research 8PPP-based poverty analysisOngoing research 9Back-casting and PPP revisionsResearch deferred 10Sub-national PPPsOngoing research Research Topics

26 Collaboration on Research Reaches out to ICP users to ensure that data collected responds to users’ needs Collaborates with experts from within and outside the Bank in 6 areas as shown in the table below: To improve some methodological aspects, the Global Office Six AreasCollaboration Inside the BankOutside the Bank 1Education  Human Development Network Education (HDNED)  Academy for Education Development (AED)  UNESCO Institute of Statistics 2Health  Human Development Network Health (HDNHE)  Institute for Health Metrics and Evaluation (IHME) 3Government Occupations  PREM Public Sector Governance team (PRMPS) 4Water  Water and Sanitation Program 5Energy  Energy Unit 6Transport by air, by land, and by sea and inland waterways  Transport Team

27 How are ICP/PPPs used in the Bank & Fund  PPPs are used to locate the international poverty line by comparing national poverty lines against GNI per capita  Convert international poverty line to national currency units to derive head count ratio Poverty headcount index  Lending thresholds are set in terms of Atlas GNI per capita  Board asked for evaluation of changing to PPP GNI per capita  Draft paper indicates relatively small number of changes in lending eligibility GNI/Capita new methodology  Proposal under discussion to incorporate PPP GDP with market-based GDP in calculation of economic weight World Bank Voice Discussion  New quota formula based on four variables (1) Openness; (2) Variability ; (3) Reserves ; (4) GDP converted at market exchange rates and PPP rates (weighted ) Quota Calculation of Fund

28 New Research on Poverty Estimating Poverty PPPs  $1/day poverty estimates rely on consumption PPPs $1/day  Weights are consumption shares from national accounts  Prices are obtained from ICP PPPs are weighted averages of prices  Both weights and prices can be wrong for the purpose of measuring poverty: Weights don’t represent the consumption of the poor The poor may pay different prices (mixed evidence of this) Weights & Prices  Calculate PPPs for the poor (PPPPs) : Weights “at the poverty line” obtained from household surveys Still use ICP prices (no “prices for the poor” available) Research: PPPPs

29 Estimating Poverty PPPs PPPP methodology & estimates by Deaton/Dupriez Main conclusion: the source of data matters more than the reweighting PPPs calculated using NA weights differ significantly from PPPs/PPPPs calculated using survey data PPPs and PPPPs very similar if we use the same source of consumption data (surveys) for both Main conclusion Future research (under ICP 2011) and work Study the price differentials urban/rural, poor/non poor Compare ICP prices with unit values in survey data Harmonize methods and data of consumption surveys Research: PPPPs

30 3. Capacity Building ICP 2011 Timetable 1. Fund Raising 2. Meetings Quality Assess. 5. Methodologies 6. Survey Prep. 7. Survey Implement. 8. Nat. Accounts 9. Regional Results 10. Global Results

31 More information on the International Comparison Program can be found on the ICP website:

32 Thanks

33 Extra Slides: The 2005 Results 33

34 New View of the World Economy 2005 ICP Results World Share of GDP Based on Market Exchange Rates World Share GDP Based on PPP Middle-income economies, 32% Low-income economies, 7% Low-income economies, 2% Middle-income economies, 19% High-income economies, 78% High-income economies, 61%

35 Disparity Across Economies 2005 ICP Results World Population (%) World GDP (%)

36 What we Learned from 2005: Largest 12 Includes 5 Developing Countries  Largest economies: 1. United States 2. China 3. Japan 4. Germany 5. India 6. United Kingdom 7. France 8. Russian Federation 9. Italy 10. Brazil 11. Spain 12. Mexico 12 economies account for 2/3 of world expenditures

37 What we Learned from 2005: Economic Well Being PPP- Based Actual Individual Consumption per capita, $ 0 5,000 10,000 15,000 20,000 25,000 30,000 E urostat/OECDCISLACWestern AsiaAsia/PacificAfrica

38 What we Learned from 2005: Distribution of Consumption Per Capita

What we Learned from 2005: Economies with the highest & lowest GDP per capita Luxembourg780 Qatar765 Norway530 Brunei Darussalam529 Kuwait501 Ethiopia6.6 Niger6.5 Guinea-Bissau6.3 Liberia4.3 Congo, Dem. Rep.2.9 Richest Economies (% of world average) Poorest Economies (% of world average) 39

40 What we Learned from 2005: Price Levels Compared at Per Capita