Linking Intra- and Inter-Country Spatial Price Adjustments in Global Poverty Measurement : Urban PPP Bias and Reference Price Mismatch
Measuring global poverty requires two types of spatial price adjustments: inter-country price adjustment based on the international purchasing power parities (PPPs) and intra-country price adjustment to account for cost-of-living variations in diff...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/730391622558489592/Linking-Intra-and-Inter-Country-Spatial-Price-Adjustments-in-Global-Poverty-Measurement-Urban-PPP-Bias-and-Reference-Price-Mismatch http://hdl.handle.net/10986/35646 |
| Summary: | Measuring global poverty requires two
types of spatial price adjustments: inter-country price
adjustment based on the international purchasing power
parities (PPPs) and intra-country price adjustment to
account for cost-of-living variations in different parts of
a country, especially between urban and rural areas. Current
global poverty measurement lacks an adjustment mechanism for
this within-country price variation for many countries,
particularly in Sub-Saharan Africa. This paper highlights
the need for matching reference prices with those the
International Comparison Program (ICP) uses for PPP
calculation to avoid poverty estimation bias, largely
because many countries collected 2011 ICP price information
only in urban areas. Data from four Sub-Saharan African
countries are used to show that potential bias in estimated
poverty rates due to such reference price mismatches ranges
from 0.3 to 6.2 points in absolute terms. A larger bias is
observed in countries where gaps between urban and rural
prices are greater. The analysis also shows potentially
large bias due to lack of intra-country price adjustments.
These potential biases underscore the urgent need for
conducting within-country price adjustments and matching
purchasing power parity reference prices with country
spatial price deflators. An important first step is to
identify what reference prices the 2011PPPs used for each
country, which currently is not clear. The World Bank, with
ongoing relationships with National Statistics Offices, is
well positioned to take up this task to improve the accuracy
of the methodology for estimating poverty at the global,
regional, and national levels. |
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