TY - JOUR
T1 - Sensitivity of purchasing power parity estimates to estimation procedures and their effect on living standards comparisons
AU - Majumder, Amita
AU - Ray, Ranjan
AU - Santra, Sattwik
PY - 2017/10
Y1 - 2017/10
N2 - The motivation of this exercise is to compare the Purchasing Power Parities (PPPs) calculated using different procedures and study the sensitivity of global rankings of regions based on living standards to the PPPs used. The empirical comparison involves the GEKS, weighted CPD, GK, EWGK and the True Cost of Living Index (TCLI) based PPP estimation procedures with the Indian Rupee used as the numeraire currency. The published ICP PPPs for 2011 are used as benchmark for the non ICP PPPs obtained in this study. Evidence confirming the "Gershenkeron effect," that affects the additive GK procedure, is provided. The results suggest that the EWGK PPPs, which are also additive, do not suffer from the extent of bias of the GK PPPs. The paper also provides evidence on the large variation in the TCLI based PPPs across expenditure quintiles originating from variation in preferences between expenditure classes. This suggests departure from the current ICP practice of providing one PPP for the entire country and points to the need to estimate PPPs by different expenditure classes. The empirical evidence points to the rich potential for the rarely used TCLI in future PPP calculations.
AB - The motivation of this exercise is to compare the Purchasing Power Parities (PPPs) calculated using different procedures and study the sensitivity of global rankings of regions based on living standards to the PPPs used. The empirical comparison involves the GEKS, weighted CPD, GK, EWGK and the True Cost of Living Index (TCLI) based PPP estimation procedures with the Indian Rupee used as the numeraire currency. The published ICP PPPs for 2011 are used as benchmark for the non ICP PPPs obtained in this study. Evidence confirming the "Gershenkeron effect," that affects the additive GK procedure, is provided. The results suggest that the EWGK PPPs, which are also additive, do not suffer from the extent of bias of the GK PPPs. The paper also provides evidence on the large variation in the TCLI based PPPs across expenditure quintiles originating from variation in preferences between expenditure classes. This suggests departure from the current ICP practice of providing one PPP for the entire country and points to the need to estimate PPPs by different expenditure classes. The empirical evidence points to the rich potential for the rarely used TCLI in future PPP calculations.
KW - CPD model
KW - Hasse diagrams
KW - International comparison program
KW - Purchasing power parity
KW - Spatially correlated prices
KW - True cost of living index
UR - http://www.scopus.com/inward/record.url?scp=85032908501&partnerID=8YFLogxK
U2 - 10.1515/jgd-2017-0006
DO - 10.1515/jgd-2017-0006
M3 - Article
AN - SCOPUS:85032908501
VL - 8
JO - Journal of Globalization and Development
JF - Journal of Globalization and Development
SN - 2194-6353
IS - 1
M1 - 20170006
ER -