The solution of problems in international comparisons of GDP through price adjustments. What to learn from ECP 1980?

Abstract

In international comparisons of GDP, the purchasing power parities are derived from elementary price information of ‘representative items’. For various reasons, the articles (goods, services) available are not always fully equivalent. Adjustment of the prices is a means that is sometimes referred to as a way out, although often practiced in a pragmatic ad hoc manner. In the European Comparison Programme (ECP) 1980, this technique has been used to cope with comparability problems between the Group II countries.

Reconsidering ECP practice, certain common features of adjustment emerge which may provide a basis of further development. Adjustment is one choice among several options of which others may be preferable, but sometimes it is the only applicable solution. A basic distinction can be drawn between adjustment for differences of quantitative characteristics and of qualitative characteristics. The former seems to lend itself to more ‘exact’ procedures while the latter is to a greater extent subject to arbitrariness. Yet subjective elements are inherent in both types. Attempts of standardization might refer to conventions on methods; to likely magnitudes; to coverage; and to areas for application. Conclusions drawn with a view to future comparison rounds recommend methodological and organizational preconditions to be provided rather than ‘cooking recipes’.