A Unified Framework for the Estimation of Intra and Inter Country Food Purchasing Power Parities with Application to Cross Country Comparisons of Food Expenditure: India, Indonesia and Vietnam

This paper proposes a preference based methodology, analogous to the estimation of equivalence scales in the demographic demand literature, for the estimation of the item specific intra country PPPs (i.e. spatial prices) and inter country PPPs in a unified framework using unit records of household food expenditures from three Asian countries: India, Indonesia and Vietnam, covering contemporaneous time periods. The study addresses a key limitation of the ICP exercise, namely, treating all countries, large and small, as homogeneous entities. Moreover, it (i) directly calculates bilateral PPPs between countries based on their expenditure patterns and prices alone and (ii) directly estimates the Price Level Indices (PLI) and their standard errors allowing formal tests of the hypothesis of PLI being unity. The usefulness of the estimated PPPs is illustrated by applying them to comparisons of real food expenditures between the three countries, and benchmarking the comparisons with those using the ICP PPPs.