Subnational Purchasing Power Parities as a Tool for the Interarea Comparison

Abstract

The author describes the key characteristics of domestic and foreign experience in the development of conceptual and methodological foundations for the construction of subnational purchasing power parities. The relevance of the topic is explained, in particular, by the fact that subnational purchasing power parities are one of the key tools of the interarea comparison analysis. This causes the expanding attention paid by the national statistical ofces to its compilation and the development of the corresponding methodology. Thus, in July 2021, the World Bank as the Global ICP coordinator published two important guides presenting the international standards for producing purchasing power parities – for developing subnational PPPs and for integrating PPPs and CPI production activities.The international standards recommend considering the sum of expenditures on fnal consumption and gross fxed capital formation as the aggregated regional indicator in interarea PPP-based comparisons. A narrower indicator – household fnal consumption – can also be used depending on the purposes of further analysis; household budget survey data provide weights in comparing the consumer prices. Producing subnational PPPs is closely linked with assessing the spatial adjustment factors, which can provide an important tool in computing the national PPPs.Bearing in mind that producing subnational PPPs is a labor-intensive process, which includes all work stages (price data collection and validation, forming the weights system, computations, ensuring a balanced presentation of regions), the international standards suggest focusing on the annual frequency of works.Integrating the production of subnational PPPs with the CPI calculations system is one of the key factors for ensuring the efciency of the whole work.