AN INDEX APPROACH TO ASSESS THE RELIABILITY OF PURCHASING POWER PARITIES IN CHINA

Abstract

The introduction of representative products in International Comparison Program makes the purchasing power parities (PPPs) a computable concept. The representative extent of the product list for the participating countries has important impacts on the reliability of PPPs and the global results. However, the measurement of representativeness and its induced biases in the estimated PPPs has not been carried out to our knowledge. Therefore, the paper designs a new index approach - Intra-National Assessment (INA), to assess the reliability of PPPs via representativeness. The approach considers the regional disparity and urban-rural differences from the lowest level of the product specifications to the GDP level. This bottom-up approach is applied to empirically assess the reliability of China’s PPPs in 2011 ICP. From the reliability degree perspective, the China’s PPP at GDP level is reliable, but the variation at main category is relatively larger. The PPP reliability of the lower levels function differently. The reliability of food and its subcategories are more reliable than any other categories because of detailed survey data sources. The reliability results of durable consumer goods, transport and communications, housing, machinery and equipment, and construction vary considerably. Further problems about the INA approach are discussed. Reliability implications in this study would be helpful for measuring the real size of China and the world economy.