Overview
The ICP is a complex international statistical exercise, and its methodology has evolved over several decades. The 2021 cycle maintained the same core methods and procedures applied in the 2011 and 2017 cycles, further strengthened data quality assurance approaches using the latest technology and maintained proper documentation and a transparent process for producing results. The box below summarizes the new developments incorporated into the ICP 2021 methodology.
Overall, the ICP methodology has three major components. The first is the System of National Accounts (SNA) definition of final expenditures on GDP. The second is the basket of goods and services from which items are selected for pricing: these items should be comparable across economies and should represent an important part of each economy’s final purchases. Prices for these items should reflect the definition and classification of the respective category in the national accounts expenditures. The third component is the methodology used to compute purchasing power parities (PPPs) - first within regions for the regional comparisons and then across regions for the global comparison.
Each ICP comparison has a reference year, such as 2011, 2017, and 2021. Each participating economy provides the following required data for the reference year: a set of average prices for a selection of items chosen from a common basket of precisely defined goods and services; a detailed breakdown of the national accounts expenditures in local currency units, according to a common classification; the economy’s market exchange rates; and its resident population. The prices and expenditures are used to calculate PPPs and PPP-based expenditures (or volumes); the market exchange rates and PPPs are used to calculate price level indexes; and the population totals and PPP-based expenditures are used to calculate PPP-based expenditures per capita. Prices and expenditures are reported by participating economies in their local currencies. Both cover the whole range of final goods and services constituting GDP.
Box: New developments in the ICP methodology introduced in the 2021 cycle.While the core methodology remains the same as the ICP 2017 cycle, three main developments were adopted for the estimation of the 2021 benchmark PPPs. These further harmonize the computation process across all participating regions and economies by overcoming exceptions to the core methodology. 1. The Commonwealth of Independent States (CIS) region is now treated as the sixth core region in the global linking procedure. In previous ICP cycles the CIS region was linked via the Russian Federation’s dual participation in both the CIS and Eurostat-OECD ICP regional programs. In the ICP 2021 cycle the CIS region was linked through the same global core list approach used for all other ICP regions. For ICP 2017 the Russian Federation’s results were based on the OECD comparison, and for ICP 2021 they were based on the CIS comparison. 2. Regional housing PPPs for economies in the Asia and the Pacific region were estimated using a hybrid approach, following the standard ICP methods for estimating housing PPPs based on rental and volume data. This approach was used for the revised ICP 2017 results and ICP 2021 results, both at the regional and global levels, and replaced the previously utilized non-standard reference volume approach. 3. For economies that did not participate in the ICP 2021 cycle and, therefore, did not submit any data, PPPs were imputed based on a regression model using other official data sources. In addition to the imputation of PPPs at the level of GDP and household consumption, PPPs for actual individual consumption were imputed for the first time in the ICP 2021 cycle. These developments ensure the increasing standardization of the ICP methodology by incrementally overcoming exceptions in the treatment of economies and regions. |
Conceptual framework
The conceptual framework for an ICP comparison is determined by the definition of GDP. The ICP 2021 cycle utilized the internationally agreed-on definition of GDP provided by SNA 2008 (UNSC 2009) as its framework for the common ICP expenditure classification. The SNA defines GDP from the expenditure side as the sum of expenditures on final consumption, gross capital formation, and net exports. Final consumption is the total expenditure on the goods and services consumed by individual households or the community to satisfy their individual or collective needs. Gross capital formation is the total expenditure on gross fixed capital formation, changes in inventories, and acquisitions less disposals of valuables. Net exports are the difference between the value of goods and services exported and the value of goods and services imported. ICP comparisons are based largely on PPPs calculated using prices collected for the expenditure components of final consumption and gross fixed capital formation. Prices are not collected for changes in inventories, the acquisition and disposal of valuables, or net exports, and are thus deflated using reference PPPs.