Ideas to Action:

Independent research for global prosperity

X

Views from the Center

Feed

Recently revised World Bank estimates of PPP (purchasing power parity) -- adjusted GDP suggest that China and India are an astonishing 40 percent poorer than earlier guesstimated in terms of average living standards. Arvind Subramanian provides a nice assessment (Fact Check, Reality Check? New GDP Data) of these new estimates, in which GDP (measured in U.S. dollars at market exchange rates) is adjusted for differences in prices of nontradeable goods and services, to better reflect consumer capacity and thus living standards. Arvind concludes that the analysis leading to the new estimates makes sense -- despite the jaw-dropping magnitude of the reduction in estimated PPP-adjusted GDP. Certainly adjustments in purchasing power parity estimates were long overdue. In India the PPP data was based upon price data collected more than 20 years ago, while in China such detailed price data has never before been reported.

The new estimates suggest that there are a lot more poor people in China and India than globophiles believed (see, for example, Dollar and Kraay "Growth is Good for the Poor." Also, for a summary of globaphobe and globaphile views based on reductions in poverty in China and India see Birdsall, "Asymmetric Globalization"). That declines in poverty were being overstated is a point that Robert Wade made several years ago, on the reasonable grounds that there existed little hard information on the prices of the goods and services that made up consumption basket of the poor in China.
Arvind closes his discussion with a plea that more World Bank resources go for data gathering and analysis of just this kind -- data for assessing relative income across countries and over time -- that is not in the interest of any one country to finance. He refers to our argument that a much larger portion of the Bank's resources should be channeled to activities that produce global public goods -- starting with a new Global Goods Trust Fund of at least $3 billion (see The Hardest Job in the World).
Why did the collection of the price information needed for better PPP estimates take so long? I remember in the early 1990s, when I was head of the policy research group at the bank, pleading for funds to support Robert Summers at the University of Pennsylvania (yes the father of Lawrence Summers) who had created and was running surveys of local prices and the resulting estimates of purchasing power parity, which the World Bank eventually, belatedly adopted. You would think that getting the bank to finance such an obviously central and compelling a project -- the collection and analysis of data fundamental to measuring and understanding the causes of poverty -- would have been easy. Think again: absent a clear mandate, getting the necessary support was like pulling teeth.
I suppose we should be heartened that at some point in the ensuing 15 years, the bank finally got itself involved. But I wonder why it took so long, and why the bank ended up not only financing but doing the work instead of outsourcing it. And I fear that fundamentally it is still hard to get internal bank financing for such truly global goods.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.