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Subnational Purchasing Power Parities toward Integration of International Comparison Program and Consumer Price Index: The Case of the Philippines

Author

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  • Dikhanov, Yuri

    (World Bank)

  • Palanyandy, Chellam

    (Asian Development Bank)

  • Capilit, Eileen

    (Asian Development Bank)

Abstract

The International Comparison Program (ICP) compares levels of economic activity and relative price levels among countries of the world. The main feature of the ICP is that it produces spatial indexes or purchasing power parities (PPPs) that allow cross-country comparison of gross domestic product (GDP) and its major aggregates. While the PPPs produced from ICP are spatial indexes, the consumer price index (CPI) is temporal and measures the changes in the average prices of a fixed basket of goods and services purchased by households from one period to another. This paper describes how information from the CPI can be used for intracountry comparisons of price levels (spatial comparisons) that would be consistent in the temporal dimension. In this way the output is temporally consistent subnational price levels (subnational PPPs) that can be used in regional price comparisons, real income dimension of human development indexes, poverty estimates, regional cost of living indexes, etc. This study aims to analyze the plausibility of integrating ICP with the Philippines’ CPI by computing subnational PPPs using regional prices and expenditure weights from the CPI. This study also aims to find out whether prices collected for the CPI could be used to provide reliable estimates of price levels for a range of products in each region, and show if the relationships between these price levels are consistent with information coming from the ICP process. The current project using data collected from the Philippines’ CPI has shown that the subnational price levels obtained from both the CPI and ICP processes are broadly similar. The study shows that all regional price movements are highly correlated, which is probably an indication of efficiency of the markets. However, the substitution effects cannot be studied right now as the only available expenditure structure at the time of subnational PPP estimation is for 2000. Incorporating substitution effects of changing expenditure patterns should improve the estimate.

Suggested Citation

  • Dikhanov, Yuri & Palanyandy, Chellam & Capilit, Eileen, 2011. "Subnational Purchasing Power Parities toward Integration of International Comparison Program and Consumer Price Index: The Case of the Philippines," ADB Economics Working Paper Series 290, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0290
    Note: http://www.adb.org/sites/default/files/economics-wp290.pdf
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    Cited by:

    1. Weinand, Sebastian & von Auer, Ludwig, 2019. "Anatomy of regional price differentials: Evidence from micro price data," Discussion Papers 04/2019, Deutsche Bundesbank.
    2. Petr Janský & Marek Šedivý, 2018. "How Do Regional Price Levels Affect Income Inequality? Household-level Evidence From 21 Countries," LIS Working papers 752, LIS Cross-National Data Center in Luxembourg.
    3. Sebastian Weinand & Ludwig von Auer, 2019. "Anatomy of Regional Price Differentials: Evidence From Micro Price Data," RatSWD Working Papers 268, German Data Forum (RatSWD).
    4. Chen,Xiaomeng & Mungai,Rose & Nakamura,Shohei & Pearson,Thomas Patrick & Wambile,Ayago Esmubancha & Yoshida,Nobuo, 2020. "How Useful is CPI Price Data for Spatial Price Adjustment in Poverty Measurement? : A Case from Ghana," Policy Research Working Paper Series 9388, The World Bank.
    5. José‐María Montero & Tiziana Laureti & Román Mínguez & Gema Fernández‐Avilés, 2020. "A Stochastic Model with Penalized Coefficients for Spatial Price Comparisons: An Application to Regional Price Indexes in Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(3), pages 512-533, September.
    6. Laureti, Tiziana & Prasada Rao, D.S., 2018. "Measuring Spatial Price Level Differences within a Country: Current status and Future Developments /Medición de las diferencias de nivel de precios espaciales dentro de un país: Estado actual y evoluc," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 36, pages 119-148, Enero.
    7. Menggen Chen, 2022. "Engel’s law in China: Some new evidence," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1640-1662, August.
    8. Sebastian Weinand & Ludwig von Auer, 2019. "Anatomy of Regional Price Differentials: Evidence From Micro Price Data," Research Papers in Economics 2019-03, University of Trier, Department of Economics.
    9. Luigi Biggeri & Tiziana Laureti & Federico Polidoro, 2017. "Computing Sub-national PPPs with CPI Data: An Empirical Analysis on Italian Data Using Country Product Dummy Models," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(1), pages 93-121, March.
    10. Menggen Chen & Yan Wang & D. S. Prasada Rao, 2020. "Measuring the spatial price differences in China with regional price parity methods," The World Economy, Wiley Blackwell, vol. 43(4), pages 1103-1146, April.
    11. Amita Majumder & Ranjan Ray, 2020. "National and subnational purchasing power parity: a review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(2), pages 103-124, June.
    12. Amita Majumder & Ranjan Ray, 2017. "Estimates of Spatial Prices in India and Their Sensitivity to Alternative Estimation Methods and Choice of Commodities," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(1), pages 145-167, March.
    13. Menggen Chen, 2021. "Sub-National PPPs Based on House and Real Income Disparity across China: a Distinctive Spatial Deflator," The Journal of Real Estate Finance and Economics, Springer, vol. 62(2), pages 187-219, February.
    14. Luigi Biggeri & Guido Ferrari & Yanyun Zhao, 2017. "Estimating Cross Province and Municipal City Price Level Differences in China: Some Experiments and Results," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(1), pages 169-187, March.

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