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.
The ICP entails estimating PPPs and related macro-economic aggregates of economies for comparison. The World Bank coordinates global-level ICP, while ADB covers the program’s Asia and the Pacific component.
The framework for the ICP in Asia and the Pacific is the same as the general approach to the ICP in all regions. The principal objective of the ICP is to provide policy makers, international organizations, economists, researchers, and the wider public with comparable measures of economic activity as measured by gross domestic product (GDP) and its components. The main problem for international comparisons is that data on GDP and its components are published in local currency units by statistical offices of the participating economies, making it difficult to compare across economies. GDP aggregates from economies are also influenced by differences in prices of goods and services that comprise GDP. The common practice on, and an intuitive approach to, international comparisons have been the use of market/official exchange rates to convert GDP data from economies into a common currency unit such as the United States dollar. While the use of exchange rates eliminates the problem of currency units, it fails to adjust for price level differences; this forms the crux of the problem encountered and effectively resolved in the ICP.
The ICP methodology is divided into three major components: expenditures as defined by the system of national accounts; prices of goods and services; and the actual methodology to compute PPPs. Following the framework of the ICP and standard methodologies, Asia and the Pacific implements the regional program and has developed practices and approaches to collect and compile price statistics and compute PPPs, real expenditures, and other ICP-related indicators.
The concept of GDP and its measurement is undertaken in various economies based on the internationally accepted standard, which is the 2008 System of National Accounts (SNA) published by the United Nations, the Commission of the European Communities, the International Monetary Fund, the Organisation for Economic Co-operation and Development, and the World Bank.
GDP is a widely accepted measure of economic activity. According to the SNA, GDP can be measured using three different methods: production approach, income approach, and expenditure approach.
GDP = gross domestic product, ICP = International Comparison Program.The ICP methodology is designed to provide volume measures for any desired component of GDP. Therefore, it is necessary to identify the level of disaggregation that is permitted within the ICP. As ICP provides measures of PPPs that convert a given aggregate into volume or real expenditure, the first and foremost requirement is to have an expenditure measure available at the aggregate being considered.
Basic headings are the lowest level of aggregation of items in the GDP breakdown for which expenditure data are available. They are the basis for estimating PPPs at higher level of aggregations, and are therefore known as the building blocks for ICP. Below the basic heading level, it may be possible to collect prices of items that make up the basic heading but estimates of expenditures are not usually available and/or not produced by most national statistics offices. For basic headings to be meaningful, it is necessary to group goods and services that are similar. However, in practice, basic headings may cover a broader range of products than what is desirable.
The ICP in Asia and the Pacific uses 155 basic headings following the ICP Global Office recommendations. In principle, the ICP methodology can be used to derive volume measures at each of the 155 basic headings or at aggregates that make up the basic headings. The ICP uses a hierarchical approach as shown in the pyramid figure.
National accounts data are at the core of international comparisons and serve two roles in the ICP. The primary objective of ICP is to provide comparable real expenditure aggregates obtained by converting expenditures in different economies expressed in their own currency units into a common currency unit. National accounts are the only source of data on expenditures in different categories at the national level. Therefore, the primary role of national accounts is to provide reliable estimates of expenditures. The ICP starts with the basic headings as the level at which expenditures are available and deemed reliable for most economies. The second role of national accounts is to provide weights necessary for aggregation of price data. The weights are the expenditures on each basic heading expressed as a share of GDP. As PPPs are computed using the national accounts, the accuracy and comparability of national accounts values and weights can impact on the accuracy and comparability of the PPPs.
For Asia and the Pacific, national accounts data validation was done at 2 stages: intra-economy validation carried out by the individual participating economies and inter-economy validation carried out by ADB. There was also a third level of inter-regional validation performed by the ICP Global Office.
The implementing agencies were required to submit GDP expenditures data for 155 basic headings from 2017 to 2021 using the ADB-developed GDP Price Collection Tool (PCT). The PCT had built-in validation checks which include additivity from the basic heading level to higher levels of aggregation; completeness of entries for the 155 basic headings; completeness of entries for the years 2017 to 2021; and presence of negative values where it was not expected or acceptable among others. Other useful information in the PCT included methodology for estimating basic headings based on recommended splitting methods; comparison of shares across years at the GDP, main aggregates, categories, groups, and class levels; and comparison of per capita estimates in local currency units. Likewise, the PCT flagged for review/confirmation absolute difference at the category and basic heading levels which exceeded specified thresholds and higher than expected category shares.
Two regional workshops were dedicated to analyze the economy estimates with technical advice from an international expert on national accounts. The hands-on session for economy validation and documentation was conducted in one of the regional workshops specifically to assist implementing agencies in GDP data validation. Documentation of estimation methodologies was deemed an important step taken by the implementing agencies for reference and guide in future ICP cycles.
Outside of the RIA’s and ICP Global Office’s validation tools, GDP and main aggregates levels data submitted by economies were validated with economy data in the ADB’s Key Indicator for Asia and the Pacific 2023 and the Compendium of Supply and Use Tables. The latter publication, which is an output of an ADB technical assistance was a valuable reference in compiling detailed estimates required by the ICP.
Revised data based on the comments/findings using the ADB and ICP Global Office GDP validation tools, verification with relevant ADB publications, discussions during the regional workshops and technical advice of the international national accounts expert all contributed to the submission of GDP expenditures data required for robust PPP estimation for the region.
References: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.
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These present the ICP reports and related research presenting methodologies and results of purchasing power parities (PPPs) across various ICP cycles in Asia and the Pacific and related research such as studies on poverty-specific PPPs, integrating ICP with the Consumer Price Index as a framework for subnational PPPs, and alternative approaches for estimating PPPs for non-benchmark years in the region.
ICP Reports and ResearchGuide on the Integration of CPI and ICP Activities
ICP COVID-19 Guidance Note on Price Surveys
ICP COVID-19 Guidance Note on National Accounts
Expenditure Data
