Estimating subregional and regional growth for developing Asia

Transcription

1 Esimaing subregional and regional growh for develoing Asia In esimaing subregional (e.g., Eas Asia) and regional (i.e., develoing Asia) gross domesic roduc (GDP) growh, i is necessary o use weighs o roerly accoun for he conribuion of counries o overall regional erformance. In his aggregaion, counry income measured in domesic currency mus be convered o common unis. A choice has o be made wheher o use marke exchange raes; some kind of adjused exchange rae, e.g., he World Bank Alas mehod; or urchasing ower ariy (PPP) raes. In is early ublicaions, Asian Develomen Oulook derived is subregional and regional averages using curren US dollar exchange raes. Bu afer he financial crisis in as devaluaions of currencies coninued, ADO shifed o he Alas mehod o smoohen he abru changes associaed wih he raid movemen of Asian currencies. This echnical noe exlains he wo mos frequenly used weighing sysems in cross-counry comarisons of economic size and growh he World Bank Alas mehod and he PPP aroach and illusraes how heir use can influence he calculaion of averages. These measures are usually alied o he gross naional income (GNI) of economies, so ha he rankings or he relaive economic size of economies reflec all faces of income earned domesically and abroad. World Bank Alas mehod While using curren marke exchange raes is sraighforward, i is an unsaisfacory soluion for inernaional comarisons because of ossible volailiy of marke exchange raes and cross-counry inflaion raes. For insance, heir use will deress esimaes of hose economies exeriencing large dereciaions even hough domesic urchasing ower may change by much less. The Alas mehod reduces hese flucuaions and modulaes imacs on esimaes of economic size and growh. The World Bank s official esimaes of counries relaive economic sizes are based on GNI, which is convered o US dollars, using he Alas mehod. The Alas conversion facor (ACF) is he average of a counry s exchange rae for a given year and is exchange raes for he 2 receding years, adjused for he difference beween he rae of inflaion in he counry and he G5 economies.1 A counry s inflaion rae is measured by he change in is GDP deflaor, while ha for he G5, also called inernaional inflaion, is measured by he change in heir secial drawing righs (SDR) deflaors. The SDR deflaor is calculaed as he weighed average of he G5 economies GDP deflaors in SDR unis. Counry deflaors are firs exressed in SDR unis wih each counry s SDR weigh used for

2 Technical noes Esimaing subregional and regional growh for develoing Asia 141 aggregaion. The SDR deflaor is hen convered o US dollars using he $/SDR Alas conversion facor (he simle average of he acual $/SDR exchange rae for year, and he inflaion-adjused $/SDR exchange raes for years -1 and -2). The ACF is hen alied o a counry s GNI o ge he GNI in US dollars. The ACF, e*, for year is calculaed as follows: e * 1 = e / 2 + e 1 1 / 1 + e where, e = annual exchange rae or domesic currency er dollar, = he GDP deflaor, and = he SDR deflaor in dollars. This formula imlies ha if domesic and inernaional rice deflaors move in erfec synchronizaion, he Alas deflaor is jus he unweighed average of he curren and as 2 years exchange raes. However, if domesic inflaion is faser han inernaional inflaion over comarable eriods, he weighed average of he hisorical marke exchange raes is raised o reflec he fac ha here has been an erosion of domesic urchasing ower relaive o he inernaional benchmark. A higher ACF reduces a counry s GNI in US dollars; a lower ACF, reflecing higher inernaional inflaion or an areciaion of he domesic currency relaive o he dollar, increases i. Taking he raio of a counry s GNI in US dollars o oal regional GNI gives he counry s weigh, w i. The weighed GDP growh for he region or subregion is hen comued using he following formula: g j = i j gi w i wk k j where, g i = growh rae of counry i, k = subregion, and j = region. The World Bank ublishes Alas-based GNI daa on a regular basis. For mos counries, he GNI daa can be downloaded from he World Develomen Indicaors online daabase. Purchasing ower ariy mehod An alernaive aroach in convering income from naional currencies ino a common currency is he PPP mehod. This is useful for aggregaing real exendiures ino regional and subregional oals because i eliminaes he relaive rice disorions beween raded and nonraded goods inheren in conversions using marke exchange raes. PPP is defined as he number of unis of a counry s currency ha is required o buy he same amoun of goods and services in anoher counry. PPPs are exressed in erms of a numeraire currency, usually US dollars and resened eiher in erms of values exressed in he common currency or as an index wih he common currency equal o 100. The choice of a numeraire currency does no affec he relaive ariies of volume and rices across economies. PPP numbers are no available on a yearly basis, because secial

3 142 Asian Develomen Oulook 2007 Udae and benchmark Inernaional Comarison Program rice surveys are only conduced a abou 3- o 5-year inervals, deending on he region. PPP esimaes for nonbenchmark years are herefore exraolaed or esimaed, based on he laes benchmark year. As wih Alas-based GNI daa, he World Bank ublishes PPP-based GNI esimaes hrough he World Develomen Indicaors online daabase. Comaring economic size and regional growh esimaes Alas- and PPP-convered GNIs rovide beer esimaes of economic size and comuaions of growh han do marke exchange raes because of he volailiy inheren in exchange raes and he changes in he relaive rice levels beween counries. The Alas mehod dams variabiliy caused by flucuaions in exchange raes, while he PPP mehod eliminaes he effecs of differences and changes in relaive rice levels. Though beer conversion facors han simle marke exchange raes, hey are no erfec. For he Alas mehod, resuls may sill be disored if exchange raes change raidly. The PPP mehod, on he oher hand, is based on surveys, hence subjec o samling errors and esimaion roblems, aricularly on services ha may have a large nonmarke comonen. PPP esimaes for nonbenchmark years use he neares samle eriod, and so may no be reflecive of he acual PPP for he year. For counries no covered in PPP surveys, esimaes are imued using saisical models, and as such are rone o error. The GNI of develoing counries measured in PPP erms will generally exceed heir GNI measured using he Alas mehod, reflecing roduciviy differenials beween high- and low-income counries. In a high-roduciviy counry, high wages lead o high rices of services and oher nonraded goods, whereas in a low-roduciviy counry, low wages roduce low rices. The low rices of nonraded goods in develoing counries boos GNI in PPP erms, bu no using he Alas conversion facors To 10 economies based on GNI shares (% of oal regional GNI), 2006 PPP mehod Alas mehod China, Peole s Re. of 50.6 China, Peole s Re. of 43.6 India 21.4 India 15.3 Korea, Re. of 6.1 Korea, Re. of 14.7 Indonesia 4.7 Indonesia 5.4 Thailand 3.1 Hong Kong, China 3.7 Philiines 2.6 Thailand 3.4 Pakisan 2.1 Malaysia 2.4 Bangladesh 1.8 Singaore 2.3 Malaysia 1.5 Philiines 2.1 Vie Nam 1.4 Pakisan 2.1 Toal 95.3 Toal 95.0 Noe: PPP esimaes exclude Afghanisan; Bhuan; Cook Islands; Maldives; Marshall Islands; Palau; Taiei,China; Timor-Lese; and Tuvalu. Alas esimaes here exclude Taiei,China. Sources: World Bank, World Develomen Indicaors online daabase; Asian Develomen Oulook daabase.

4 Technical noes Esimaing subregional and regional growh for develoing Asia 143 Economic size Comaring GNI daa based on he Alas and PPP mehods confirms he difference in rankings. Table shows he o 10 economies in erms of size (excluding Taiei,China), for each mehod. The Peole s Reublic of China (PRC), India, Reublic of Korea (Korea), and Indonesia are in he o four sos for boh aroaches, bu rankings for Hong Kong, China; Philiines; and Thailand are more sensiive. Oher counry differences are also aaren. Subregional and regional growh These variaions in weighs resul in differen esimaes of GDP growh for regional and subregional aggregaes (Table 4.2.2). Growh esimaes Subregional and regional GDP growh (%) Alas mehod (curren $) Cenral Asia Eas Asia Souh Asia Souheas Asia The Pacific Develoing Asia PPP mehod (curren inernaional $) Cenral Asia Eas Asia Souh Asia Souheas Asia The Pacific Develoing Asia Noe: PPP esimaes exclude Afghanisan; Bhuan; Cook Islands; Maldives; Marshall Islands; Palau; Taiei,China; Timor-Lese; and Tuvalu. Alas esimaes here include Taiei,China. Sources: World Bank, World Develomen Indicaors online daabase; Asian Develomen Oulook daabase. are higher under PPP because he PRC and India have higher PPP shares han Alas shares and heir growh raes are among he fases in he region (Figure 4.2.1). Esimaed regional growh in 2006, excluding Taiei,China, was 9.4% in PPP erms comared wih only 8.5% using he Alas mehod. (This difference is no sensiive o he inclusion of Taiei,China in he Alas calculaions.) A he subregional level, he mos significan differences are for Eas Asia. This is because of he larger weigh given o raidly growing PRC and a reducion in he weigh for Korea, where growh is moderae. Conclusions The differences beween he Alas and PPP mehods influence esimaes of economic size and calculaions of subregional and regional growh. The Alas mehod smoohens flucuaions in income caused by changes in exchange raes, while he PPP mehod eliminaes he effecs of differences and changes in he relaive rice levels of goods and services. In hese growh comuaions, ADO uses Alas-based GNI weighs because he facors used in he calculaion of counry GNIs are more Shares of PRC and India o oal GNI Alas mehod (Curren U) PPP mehod (Inernaional $) Source: World Bank, World Develomen Indicaors online daabase. Click here for figure daa %

5 144 Asian Develomen Oulook 2007 Udae imely, coninuous, and less subjec o saisical roblems in aggregaion rocedures. Wih he PRC and India dominaing overall GNI shares in PPP erms, he esimaed growh for he region would be higher wih he PPP han Alas mehod. Endnoe 1 Since 2001, he G5 economies have comrised he euro zone (suerseding wo revious members, France and Germany), Jaan, Unied Kingdom, and Unied Saes. References Asian Develomen Bank Purchasing Power Pariy Preliminary Reor. Economics and Research Dearmen. A reor reared for he 2005 Inernaional Comarison Program in Asia and he Pacific. Available: h:// Main-Reor.df. Asian Develomen Bank (various years). Asian Develomen Oulook. Manila. World Bank. Inernaional Comarisons of Income websie. Available h:// go.worldbank.org/w51xuj1qx0. Inernaional Comarison Program. Available: h://go.worldbank.org/ MW520NNFK0