Based on principles
The PPP methodology requires the comparator to collect statistics in two areas: first, data on basic expenditure classifications of GDP, such as consumption of the population, government consumption, gross fixed capital formation, new inventories, net exports, and so forth, which are about 150 to 200 items. The second is price data for a number of goods and services under each basic expenditure classification, specifically information on the prices of consumer goods and services, machinery and equipment, construction goods, and the salaries of government civil servants. And, the requested statistics should follow the following principles:
1. Principle of consistency between price data and GDP expenditure data
Purchasing power parity (PPP), as a homogeneous measure for international comparisons of GDP, the price must be consistent with the valuation of the various components of GDP expenditures, and in particular, it should be consistent with the valuation of a number of non-market service expenditure items such as rents, health care and education. Consistent with the valuation of some non-market service expenditure items such as rent, health, education, etc. In this way, the PPPs obtained through price comparisons can completely eliminate the influence of the price factor and truly reflect their actual quantities. Otherwise, through the PPP after the conversion of GDP volume comparison is still affected by some price factors, will overestimate or underestimate the size and level of real GDP.
2, the principle of comparability
It refers to the countries choose to represent the quantity and quality of specifications should not be too much difference between different countries, including the number, scope, materials, design, sales conditions, and other important features should be comparable, otherwise, the calculation of price ratios are meaningless.
3, the same principle of representativeness
It refers to the selection of specifications for each country has the same representation. Comparison of prices of specifications that do not conform to the principle of equal representativeness may result in a deviation from the price ratio. Because the price of representative specifications is usually lower than that of non-representative specifications, if a certain specification is representative of country A and not representative of country B, the comparison results in an overestimation of the price level and an underestimation of the volume of goods for country B, while the opposite occurs in the case of country A. Therefore, the comparator countries were asked to collect as much data as possible on the prices of representative goods and services for that country.
Methodological Steps
Based on the acquisition of statistical data consistent with the above principles, the PPP coefficient is calculated. The specific methodology can be divided into three steps:
First step, calculate the price ratio of each good and service between the comparison countries.
The second step is to calculate the price ratios under each of the basic expenditure classifications, i.e. the basic parities, between the comparator countries. It is the geometric mean of the price ratios for each good or service under the basic classification. In multilateral comparisons, the EKS and CPD methods are mainly used.
In calculating the basic parity, special treatment is required for the classification of government consumption and rent expenditures. For government consumption expenditures, they are different from other goods and services as non-market services, which are not provided at market prices. Their sales prices are not directly comparable because of the wide variation in the welfare systems and related price subsidy systems in place in various countries. The input price method is usually used, i.e., government consumption expenditure is divided into several parts, such as compensation of employees, intermediate consumption, fixed capital consumption, etc., in which the basic parity prices of intermediate consumption and fixed capital consumption are taken directly from the purchasing power parity prices of consumption expenditure of the population and gross fixed capital formation, and the compensation of employees is obtained by comparing the salaries of government civil servants' positions to obtain the basic parity prices under this classification item.
For the category of rents, direct comparisons are made within OECD member countries using market rents, while direct comparisons are also not possible between countries with different economic systems, mainly when rent comparisons are made between Eastern and Western European countries due to the implementation of different rent systems. Generally use the quantity method for indirect comparison, the specific method is: first collect various types of residential quantity indicators and reflect the quality of residential facilities condition indicators, and then a comprehensive comparison, obtain the rent quantity and quality of the comparative coefficient, as the rent category of the purchasing power parity.
The third step is to calculate the composite PPP above the basic expenditure classification between the comparison countries. It is obtained by taking the weights of the basic expenditure classification of GDP as weights and applying the formula of the Rasch, Pahl, and Fischer indices to weight the basic parities.
In theory, as a currency conversion factor for international comparison of GDP, PPP should meet the requirements of Characteristically, Unbiasedness, Circularity or Transitivity, Structural Consistency, and Unbiasedness. Consistency), Factor Relations) and other basic requirements. In international comparisons, the main PPP aggregation methods commonly used are: EKS method, GK method and CPD method. In fact, any kind of index aggregation formula can not meet each of the above basic requirements, they are more or less have some defects.
Usually, countries carry out PPP surveys every five or three years, with intermediate years extrapolated from indices of GDP deflators between comparator countries.
Internationally, it is believed that due to the large gap in the level of economic development between countries, the economic system and consumption structure are very different, the PPP methodology has certain limitations in practical application, such as the actual survey is quite cumbersome, the accuracy of the data is difficult to grasp, the measurement error is large, the participating countries are incomplete, the data lacks of timeliness and continuity, the implementation of the cost is high, and so on.
Pilot Survey
The United Nations International Comparison Program (ICP), which is based on the purchasing power parity (PPP) methodology, as a global statistical activity, has completed six phases of comparative reports so far since it began to be implemented in phases in 1968, with the number of participating countries and regions increasing from The number of participating countries and regions has increased from 10 in the first phase to 123 in the sixth phase in 1993. Among them, the European Statistical Office (Eurostat) and the Organization for Economic Cooperation and Development (OECD) have integrated the exercise into their daily statistical work by regularly collecting, measuring and publishing PPP data. The world's new round of the International Comparison Project (ICP), led by the World Bank, has been officially launched, with 2004 planned as the base period for comparison.
In order to comprehensively understand and master the basic theoretical methodology and practical operation process of PPP, and to measure the actual scale of China's GDP according to the new methodology, according to the relevant instructions of the State Council, since 1993, the National Bureau of Statistics has organized the pilot cities concerned to carry out the pilot survey of the International Comparison Project for three times:
One is that China participated in the Sixth Phase of the United Nations Asia-Pacific Regional Comparison Project in the form of partial regional and bilateral comparisons in 1993. First, in 1993, China participated in the Sixth Phase of the International Comparison Project of the United Nations in the Asia-Pacific Region in the form of partial area and bilateral comparisons, and conducted pilot surveys in Shanghai Municipality and Guangdong Province for experimental bilateral comparisons between Shanghai and Japan, and between Guangdong and Hong Kong.
The second is that in 1996, under the survey framework of the Sixth Phase of the United Nations International Comparison Project for the Asia-Pacific Region, seven cities, namely, Beijing, Shanghai, Chongqing, Guangzhou, Wuhan, Harbin and Xi'an, were organized to carry out pilot surveys to make internal measurements for bilateral comparisons with the Hong Kong region.
Thirdly, in 1999, it participated in the pilot cooperative research activities of the 1999 round of the International Comparison Project of the Organization for Economic Cooperation and Development (OECD), and conducted pilot surveys in the above seven cities.