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The International Comparison Program (ICP)

The ICP is the world's largest global statistical initiative for estimating purchasing power parities (PPPs) to compare economic outputs, standards of living, and relative price levels across economies.

FAQs

The International Comparison Program (ICP), is the largest global statistical initiative, implemented under the auspices of the United Nations Statistical Commission (UNSC), and is aimed at estimating purchasing power parities (PPPs) to compare the real size and relative price levels of economies around the world. In the latest cycle of cycle with 2017 as the reference year, globally 176 economies participated.

This global initiative is implemented on a regional basis with economies from Africa, Asia and the Pacific, the Commonwealth of Independent States, Latin America and the Caribbean, Western Asia, participating in it apart from the economies participating in the regular PPP program managed by the Organisation for Economic Co-operation and Development (OECD) and the Statistical Office of the European Communities (Eurostat), with the World Bank coordinating the global program. These agencies are known as the Regional Implementing Agencies.

The Asian Development Bank (ADB) is the Regional Implementing Agency (RIA) of the regional program known as the ICP for Asia and the Pacific, and has been in this role since the 2005 ICP round and continues as the regional implementing agency since then. In the latest 2017 ICP cycle in Asia and the Pacific, 22 ADB regional members participated with ADB coordinating the regional program. As the RIA for Asia and the Pacific, ADB is responsible for estimating and publishing the regional purchasing power parities and estimates of GDP and its components. ADB is also responsible to provide relevant regional data from the participating economies to the ICP Global Office at the World Bank who is responsible to link the regional results for calculating the global PPPs and related real expenditure aggregates for all economies in the world. The 2017 ICP cycle marks ADB’s successful completion of the third benchmark under its stewardship, after the 2005 and 2011 benchmarks. The next ICP cycle will have 2021 as the reference year and ADB will continue to be the RIA for the Asia and the Pacific region.

Defined in simple terms purchasing power parity (PPP) of an economy B with reference to an economy A is defined as “the number of units of B’s currency that are needed in economy B to purchase the same quantity of individual good or service as one unit of A’s currency will purchase in economy A” (United Nations 2009, para. 15.199).

PPPs serve both as currency convertors and as spatial price deflators. They convert different currencies to a common currency and, in this process eliminate the differences in the price levels between economies.

“The most important use and main purpose of PPPs is to convert national accounts aggregates into a common currency unit after accounting for price level differences, thus allowing for comparisons of real expenditure levels of GDP and its component expenditures across economies“ (Asian Development Bank 2020, 13).

“A price level index (PLI) for an expenditure aggregate is the ratio of its PPP to the exchange rate and is expressed as an index with a base of 100. For example, a PLI of 110 for an economy indicates that prices in that economy are on average 10% higher than the prices in the reference economy, whereas a PLI of 90 indicates that the prices are lower by 10% on average” (Asian Development Bank 2020, 13).

“The PLIs of different economies in Asia and the Pacific can also be expressed relative to the region as a whole, with the PLI of Asia and the Pacific at 100, using a normalization process that guarantees that the real values (converted using PPPs with Asia and the Pacific as the base) and nominal values (converted using exchange rates) of a given aggregate (such as GDP) are the same for the whole region. For 2017, with the PLI for GDP for Asia and the Pacific at 100, the corresponding PLI for Hong Kong, China is 173 and the PLI for Malaysia is 87. This means that prices for household consumption aggregate in Hong Kong, China are well above the regional average but prices in Malaysia are below the regional average. It may be noted that whether the base is Hong Kong, China or the region as a whole, the price level index for household consumption in Malaysia is half of the price level in Hong Kong, China” (Asian Development Bank 2020, 13).

“The most important use and main purpose of PPPs is to convert national accounts aggregates into a common currency unit after accounting for price level differences, thus allowing for comparisons of real expenditure levels of gross domestic product (GDP) and its component expenditures across economies. These national accounts aggregates include GDP and its main components—individual consumption expenditure by households (ICEH), actual individual consumption by households (AICH), government final consumption expenditure (GFCE), and gross fixed capital formation (GFCF). Different PPPs are needed to convert each of these aggregates” (Asian Development Bank 2020, 10).

“One of the earliest and most important uses of PPPs was to determine an international poverty line to measure global and regional poverty. In 1990, the World Bank used PPPs to construct the $1/day and $2/day international poverty lines, which led to the formulation of the first of the Millennium Development Goals, set in 2000, aimed at halving extreme poverty by 2015. In 2015, the member states of the United Nations adopted the 17 Sustainable Development Goals (SDGs); eliminating extreme poverty continues to be high on that agenda. Apart from the use of the PPPs to monitor poverty, other PPP-based indicators in the SDG framework help monitor income inequality, education and health expenditure, energy intensity, labor productivity, and carbon dioxide emissions per unit of GDP. ADB’s policy paper, ADB Corporate Results Framework, 2019–2024 (2019) is aligned with the SDG agenda and includes SDG indicators whose measurement depends on PPPs to track development progress in Asia and the Pacific” (Asian Development Bank 2020, 10-11).

A more detailed discussion on the uses of PPPs and PPP-based measures at the international and local levels are available in the section “Uses and Applications of Purchasing Power Parities and Real Incomes” in Chapter 2 of the 2017 ICP Main Report.

Aside from PPP and PLI, the International Comparison Program (ICP) also publishes the following data at the level of GDP and its components.

  1. Real expenditure: “Measures obtained by using PPPs to convert final expenditures of different economies into a common currency, by valuing them at a uniform price level. Expenditures so converted reflect only volume differences between economies. They provide a measure of the relative magnitudes of the product groups or aggregates being compared. At the level of GDP, they are used to compare the sizes of economies. They may be presented either in terms of a common currency or as an index number” (Asian Development Bank 2020, 98).
  2. Nominal expenditure: “This is the expenditure in local currency unit converted to common currency using exchange rate. This expenditure is referred to as nominal since exchange rate simply serves as a currency conversion factor; as such, it does not reflect the price level in the economy” (Asian Development Bank 2020, 14). Nominal expenditure may be presented either in terms of a common currency or as an index number relative to the region’s total nominal expenditure.
  3. Per capita (real or nominal) expenditure: Total expenditure divided by the total population of a given economy. Per capita expenditure measures the standard of living in an economy. This can be expressed either in real or nominal terms. The per capita expenditures are also published as indexes with reference to Hong Kong, China as the reference economy along with indexes with Asia and the Pacific average as the reference.
  4. Economy share of (real or nominal) expenditure in Asia and the Pacific: An economy's real or nominal expenditures for an aggregate, expressed as a percentage of the total real or nominal expenditure of all participating economies in Asia and the Pacific.

These indicators are published for GDP and its components as follows:

Gross Domestic Product
Actual Individual Consumption by Householdsa
Food and non-alcoholic beverages
    Food
        Bread and cereals
        Meat
        Fish and seafood
        Milk, cheese and eggs
        Oils and fats
        Fruit
        Vegetables
        Sugar, jam, honey, chocolate and confectionery
        Food products n.e.c.
    Non-alcoholic beverages
Alcoholic beverages, tobacco and narcotics
    Alcoholic beverages
    Tobacco and narcotics
Clothing and footwear
Housing, water, electricity, gas and other fuelsa
Furnishings, household equipment and routine household maintenance
Healtha
Transportation
    Purchase of vehicles
    Transport services
Communication
Recreation and culturea
Educationa
Restaurants and hotels
Miscellaneous goods and servicesa
Net purchases abroad
Individual Consumption Expenditure by Government
Collective Consumption Expenditure by Government
Gross Capital Formation
Gross fixed capital formation
    Machinery and equipment
    Construction
    Other products
Changes in inventories
Acquisitions less disposals of valuables
Balance of Exports and Imports

Individual Consumption Expenditure by Householdsb
Individual Consumption Expenditure by Households without Housingb
Government Final Consumption Expenditure
Domestic Absorption

a Includes individual consumption expenditure by households, nonprofit institutions serving households, and government.
b Includes expenditure by nonprofit institutions serving households.

“There are three approaches to measuring GDP: the production approach, the income approach, and the expenditure approach, all yielding same results. For the purposes of the ICP, the expenditure approach is preferred because the collection of prices and GDP expenditure components is more feasible. Also, the expenditure side provides more direct measures of the standards of living of people residing in the participating economies. The accounting period for this ICP report is the calendar year of 2017” (Asian Development Bank 2020, 13).

Chapter 6 of the 2017 ICP Main Report provides comprehensive discussion on the calculation of PPPs at the regional level and linking at the global level.

“The ICP completed more than 50 years in 2018 since its inception in 1968 with 1970 as the reference year. In 1970, the first phase of the ICP covered only 10 economies, steadily increasing to 16 in 1973 and 34 in 1975, 60 in 1980, and 64 in 1985, and 115 economies in 1993. The ICP covered 146 economies in the 2005 cycle, when the ICP adopted a new global governance, with national statistical offices responsible for price and national accounts data, regional agencies coordinating regional activities, and the World Bank coordinating the global program. The 2011 ICP round was the largest ever conducted. It included 177 economies participating at the full economy level, covering all components of GDP, and an additional 22 economies covering only the household consumption aggregate. With 176 participating economies, the latest 2017 ICP cycle covers more than 99% of the world population and the world’s economic activity and is thus justifiably recognized as a global statistical program” (Asian Development Bank 2020, 2).

“During its 47th session in March 2016, the UNSC considered the evaluation report of the 2011 ICP by the Friends of the Chair group and accepted its recommendation to establish the ICP as a permanent element of the global statistical work program, to be conducted more frequently, which led to the decision to implement the ICP every three years, beginning with 2017. Accordingly, the 2020 was the next reference year, however, it was postponed to 2021 in the wake of the COVID-19 pandemic” (Asian Development Bank 2020, vii).

References

Asian Development Bank. 2019. Corporate Results Framework, 2019–2024: Policy Paper. Manila: Asian Development Bank.

Asian Development Bank. 2020. 2017 International Comparison Program for Asia and the Pacific Purchasing Power Parities and Real Expenditures: A Summary Report. Manila: Asian Development Bank. doi:http://dx.doi.org/10.22617/TCS200013-2.

Asian Development Bank. 2020. 2017 International Comparison Program for Asia and the Pacific Purchasing Power Parities and Real Expenditures Results and Methodology. Manila: Asian Development Bank.

United Nations. 2009. System of National Accounts 2008. New York: United Nations. https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf.