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Submitted by Fred Vogel on

Some clarity is provided about several points made by Kaushik; his points are shown in italic and underlined with my response following immediately.

"To understand the conceptual problems, note that different countries do not consume the same goods. "

The reality is that there is considerable overlap in goods consumed by different countries; but in different quantities. A major improvement over ICP 2005 was to classify products by their importance in each country and to apply weights in the estimation of product level PPPs between countries.

"If each country’s PPP is calculated vis-à-vis that of the United States that will give us some clean numbers, but these may not make sense when we compare some of these countries directly with one another. "

The index method used ensures that the PPPs between any two countries are the same whether they were computed directly or indirectly between all other countries.

Trying to maintain all these parities creates an impossible challenge."

While it is difficult to maintain parities between all combinations of countries, it is not impossible. The most advanced index number theory was followed and robust computation methods were developed to calculate the PPPs.

"Therefore, from the fact that a nation’s PPP-adjusted GDP has risen we cannot conclude that its chronic poverty has fallen in step. In brief, while the PPPs can be taken readily to amend GDPs, the same is not true for poverty incidences."

That is why the Bank uses a subset of the GDP (individual household consumption) for poverty analysis. PPPs are calculated for about 100 categories (basic headings) for household consumption items; these include about 30 basic headings for food. A data file containing basic heading PPPs and expenditure weights will be released to data users for their research purposes. It should not be said PPPs will not or should not be used for poverty analysis. Instead it should be said researchers can use the detailed data and apply their own assumptions to provide their measures of poverty.

Fred Vogel
Deputy Chair, ICP Technical Advisory Group