The robust data from this round, expected in 2007, will open up research opportunities in poverty measurement and monitoring, trade competitiveness, price distortion, and allow in-depth cross-sector as well as inter-sector comparisons within and between countries.
The World Bank’s International Comparison Program (ICP) provides a valuable information base for the core research and policy areas of the development community.
The Purchasing Power Parity (PPP) data furnished by the program provides a means to classify countries by level of economic development and to determine the widely used $1 per day international poverty threshold.
Over 140 countries are taking part in the 2005 round of the ICP survey, including the OECD/Eurostat region.
A focus on strengthening the program
The increasing use of ICP data over the last decade has brought closer scrutiny of the quality and timeliness of PPP estimates. As a result, a strategic framework was developed to reform the program, paying particular attention to outstanding institutional, organizational and methodological issues.
A new governance structure was put in place, including a Global Secretariat that is established and housed in the World Bank to manage the day-to-day coordination of the global program along with regional ICP secretariats mandated to implement the program in their respective regions.
An Executive Board consisting of statistical managers with representation from all regions was formed to set strategic priorities and oversee implementation of the program. A group of scholars and experts form a Technical Advisory Group to provide guidance on methodological problems.
"Because the ICP offers such widely-used data for comparative research, we invest a lot in enhancing the program’s credibility,” said Shaida Badiee, Director of the World Bank's Development Data Group. “In the current round, we tried to address longstanding issues with a view to facilitate improved development policy and to help achieve the Millennium Development Goals."
Improved methodology for better quality data
A concerted attack on data quality problems through targeted research and quality control is an important part of the program. A number of difficult methodological problems have been identified and are being tackled.
Methodological improvements include the Structured Product Description (SPD) method aimed at defining products and services in a consistent manner; linking of regional prices to form globally consistent PPPs; a new approach to generate poverty-specific PPPs; a new and simplified method to compare the cost of construction projects; and an improved measurement system for pricing equipment goods.
Structured Product Description
From a technical point of view, the ICP’s most challenging task is to prepare of a list of goods and services that meet two conflicting criteria: comparability of products to be priced and degree of representation of products in the consumption patterns of countries under investigation.
The task of building product specifications has been significantly improved with the introduction of the Structured Product Description (SPD) approach. The database formed from structured descriptions and the prices collected for them will permit more precise matching of items between countries and, in some cases, the use of statistical models to make comparisons when an exact product match is not possible.
Comparison of capital goods such as construction and equipment goods is significantly improved by adopting the SPD approach.
Linking Regional PPPs to Estimate Global PPPs
In the ICP, participating countries are grouped by regions, and global comparisons are carried out in two stages. First, regional surveys are conducted on the basis of region-specific baskets of goods and services and regional PPPs are computed from the regional average prices. The second stage involves linking regional results to estimate a globally consistent set of PPPs expressed in a common international currency, often the US dollar.
It has been widely recognized that the linking of regional results in the last round was not strong enough. In an effort to improve the global results, the Ring Comparison approach was introduced to link regional results. This new approach involves choosing a subset of representative countries from each region to price a common product list in addition to the regional lists.
What distinguishes this approach from the previous bridge-country-based linking is that it is multilateral.
Because of their relevance to monitoring development progress, poverty-specific PPPs will be compiled as a result of the current ICP round. The approach uses price relatives from ICP surveys with expenditure weights reflecting the expenditure patterns of poor people.
The data to construct such weights come from nationally representative Household Expenditure Survey sources. Where possible, the compilation of weights takes into account regional and urban-rural variations in consumption patterns.
A Poverty Advisory Group has been established to help guide the effort to improve the quality and reliability of poverty PPPs in the short term, and to concurrently work on bringing poverty PPPs into the mainstream work of the ICP.
Capacity Building in Statistics
An important by-product of the ICP is the support and, in some instances, the initiation of national and international efforts to improve the quality of price and national accounts data, upon which the calculation of PPPs depends.
“Irrespective of the PPP data that will result from this round, capacity building will be the most important legacy of the ICP in the Asia-Pacific region,” Said Ifzal Ali, Chief Economist of the Asian Development Bank.
Notable contributions of the ICP for national capacity building include a standardized survey framework development and pricing methodology; a suite of software tools for data collection, verification, processing and reporting; strengthening national CPI using the SPD methodology; and improvement in the compilation and validation of national accounts.
A handbook and accompanying operational manual provide concepts, definitions, classifications and methodological standards as well as step-by-step guidelines and procedures to implement consistent, coherent, comparable and timely data collection.
The ultimate impact of the broad improvement in procedural and methodological methods will be significant improvement in the quality of ICP data. The availability of high-quality statistics will in turn facilitate improved economic research and promote formulation of appropriate policies for poverty reduction and economic development.
For more information on methodological research and access to the research papers, visit the ICP website at www.worldbank.org/data/icp