Parallel session 6a

1. AN INDEX APPROACH TO
ASSESS THE RELIABILITY OF
PURCHASING POWER PARITIES
IN CHINA
Authors: Dong Qiu and YafeiWang
Discussant: Michel Mouyelo-Katoula
IARIW 33rd General Conference, Rotterdam, the
Netherlands, August 24-30, 2014

2. 2
I JUSTIFICATION
II REVIEW OF SIMILAR ATTEMPTS
III A NEW INDEX APPROACH
IV INA FORMULAE
V DATA SOURCES
VI RESULTS
VII SELECTED ISSUES
O
U
T
L
I
N
E

3. OUTLINE
I JUSTIFICATION
• ICP 2011 Global Office published global results in April & June 2014
3
1
• Attracted worldwide attention and generated hot debate 2
3 • China, largest developing country & 2nd largest economy in the world
• Nationwide coverage
• China’s market development not perfect => some product
prices do not lead to sound price levels
• Large quality differences between regions and urban rural
areas => limited representativeness of average prices
4 • Representativeness as well as resulting biases in PPP estimation not
yet measured

4. OUTLINE
4
II REVIEW OF SIMILAR ATTEMPTS
Authors Approach Objective Results
Hajargasht and
Rao
Stochastic
approach: CPD
method
To derive standard
errors of GK PPP
Inconclusive
Angus Maddison Comparative level
of performance -
revised 1990 PPP
China’s GDP =
half of the level
2005 results.
Feenstra et al. Reviewed possible
causes of
discrepancies
China’s real per
capita GDP = 30%
higher than ICP
2005
Hill and Syed Adjustment of
results
To take account of
unrepresentative
products, urban-rural
differences &
differing outlets.
Cause: excessive
sampling of
unrepresentative
products in urban
locations.
Majumder et al. Demand system
based
methodology
Calculated PPP
between Indian
Rupee and
Vietnamese Dong

5. OUTLINE
5
III A NEW INDEX APPROACH
1 • Intra-National Assessment [INA]
• The representative of ICP specifications products’ prices
• Weights measuring GDP and the reliability of main
classification level PPPs
• Reliability: Component failure => overall mechanical failure
Based
on
2 • Dimensions covered by the index
• Regional differences
• Urban-rural differences
• GDP classification levels

6. 6
IV INA FORMULAE
1 • Regional differences
S p D p S p D p
1 2
1 2
( )
 

S D S D
I i i i i
i J J
i i
ina p
J p J p
2 • Urban-rural differences
3 • Main classification reliability
u p 
r p
1 1
2 2
( )
*
u r
I
i u r
ina p
per u w r w


( ) ( )
1
1
I
i
I i
i
i
i
w
ina GDP ina P
w 

 
( ) ( ) ( )
 1
1
I
i
I i
i
i
i
p
ina P ina p
p 

 

J1=S+D1, J2=S+D2

7. OUTLINE
V DATA SOURCES [1 OF 3]
• Food Prices
7
1
Major cities China Urban
Life and Price
Yearbook 2012
Department of
Urban Society
China 2012
Other cities Various
websites
Development and
Reform
Commission
2 • Fo od Weights
National urban
weights
China Statistical
Yearbook 2012
NBS

8. OUTLINE
• Other Consumer Products
8
DATA SOURCES [2 OF 3]
Urban & rural clothing;
Furniture
China's Economic and
Social Development
Database
Durable goods,
transportation &
communications
China Yearbook of
Household Survey
National Bureau of
Statistics of China
Camcorders, computers,
fixed phones, cars, etc.
Unit values Customs of China
Other durables Price Yearbook of
China
NBS
Tourism data The Yearbook of China
Tourism
National Tourism
Administration of China
2012

9. OUTLINE
• Gross Fixed Capital Formation
9
DATA SOURCES [3 OF 3]
Construction
industry
Commercial
housing price
National
Bureau of
Statistics
Construction
cost margin
ratio
calculating
the relevant
indicators
Machinery
and
equipment
difference
between
gross fixed
capital
formation
and the value
added of
construction
statistical
yearbooks
of cities

10. OUTLINE
10
VI RESULTS [1 OF 2]
• Reliability of PPP of GDP and main category levels
Hhld Gov. GFCF Equip.
Constr
.
0.96 1.09 0.99 1.31 0.85
Very
high
Overv
alued
Overv
alued
Under
valued

11. OUTLINE
11
VI RESULTS [2 OF 2]
• Reliability of PPP of Household Consumption Expenditure
Food 1.049
Housing 0.29
Household consumption 1.08
Household equipment and maintenance 0.71
Transport & communication 1.72
Clothing 0.79
Education & entertainment 1.04

12. OUTLINE
VII SELECTED ISSUES
• CONSISTENCY ?
12
1
 Sources
 List of products & Product description
 Geographical coverage
 Time coverage
 Consistency with National Accounts
2 • COMPARABILITY ?
 Time
 Space
 What about other countries?
3 • CONSTRUCTION AND HOUSING
 SNA Rules

13. 13