It is well recognized that in many countries there can be variation in price levels across different areas within the country (states, regions, provinces, etc.). Policymakers and researchers interested in the nature of subnational development processes may find it useful to take such price variations in mind, for instance, when assessing intra-country inequality and the incidence of poverty, or when analyzing the convergence and productivity performance of different areas within the country.
At the country-level Purchasing Power Parity measures from the ICP are commonly used to facilitate cross-country comparisons (for instance, of GDP). However, ountry-level PPPs cannot inform the user when it comes to comparisons of subnational entities, because they are not designed to capture subnational price level differences. Hence, what is needed in such instances are measures of price level differentials across regions or cities within a country – pointing toward the need for PPPs or spatial price index numbers at a subnational level.
While there have been several experimental studies by researchers and national statistical offices (NSOs) during the last two decades, it is only recently that the role and significance of subnational PPPs and spatial Consumer Price Indices (CPIs) has come into prominence. As such, the World Bank’s Task Force on Country Operational Guidelines and Procedures has been entrusted with the preparation of a Guide on the Compilation of Subnational PPPs.
This guide is presented within the methodological framework of the ICP and it is designed to provide guidance to the regional implementation agencies of the ICP and to the NSOs that may decide to embark on a program of compilation of spatial price indices at the subnational level, taking into account their large dimension and/or the significant variation in price levels across different subareas within the country. As price comparisons within a country are anchored on price data collected as a part of the compilation of the CPI, this guide has a symbiotic relationship with the guide on CPI-ICP integration. NSOs involved in the compilation of subnational PPPs are advised to consult both manuals.
This guide on subnational PPPs has several objectives:
- To communicate effectively to potential users such as NSOs, price statisticians, policy makers, politicians, academics and others the objectives and outcomes of a program for the computation of subnational PPPs and/or spatial CPIs.
- To serve as a guide to ICP and CPI practitioners, whatever their role, in planning, coordinating and monitoring the implementation of a subnational PPP program and, as such, providing basic reference materials.
- To advise the users of subnational spatial price indices on the use and interpretation of the resulting price level and real expenditure comparisons.
- To discuss challenges in terms of the scope and applications, establishment of the survey framework, and methodological guidelines, and highlights some of the practical issues that arise in setting up such a program.
- To provide country case studies that highlight the experience gained from the compilation of subnational PPPs.
Access the full guide from the World Bank’s library of public documents. The guide was reviewed by the International Comparison Program (ICP) Inter-Agency Coordination Group.