Re-examining Some Problems in the Methodology of International Economic Comparison
This chapter introduces the methodology used for the eighth International Comparison Project (ICP). It starts with the concept of commodity homogeneity—what it entails, how it is established, and why it is the premise for international comparison—and continues to explain the differences and similarities between the purchasing power parity (PPP) method adopted by the ICP and the exchange rate method. The authors state that the PPP method was developed to make up for the flaws of the exchange rate method; however, it has both advantages and disadvantages. The greatest uniqueness and advantage of the PPP method over the exchange rate method is that the former is a structural analysis method. Finally, the authors suggest that further research is needed to improve the PPP method.