International comparison of cost for the construction sector: towards a conceptual model

Abstract

Purchasing power parity (PPP) is often used by global organizations to perform international comparison of gross domestic product and other important economic indicators. Gross level comparisons include comparison of the output of the construction sector. Calculation of a construction sector PPP is a challenging endeavor incorporating aspects of construction finance, management, and estimating. The existing method in use by the World Bank relies upon a detailed estimate for a set of standard projects. The drawbacks of this method have been noted. Exploring the use of baskets of goods and services, the article finds that the inherent incorporation of labor and equipment charges is an important advantage of the standard projects method (SPM). However, the SPM is difficult and expensive to conduct. Therefore, a reduced scope of construction cost estimating is proposed, through the use of a basket-of-construction-components (BOCC). This article describes the BOCC approach that can be utilized to calculate construction sector PPP.

Keywords:

• Economics
• Economic analysis
• Financial management
• Construction costs
• Cost estimates
• Construction management
• International factors

Acknowledgements

The authors would like to acknowledge Mr. Yonas Biru, Senior Economist with the Development Data Group at the World Bank for his guidance in issues related to econometrics. This article resulted from research supported in part by the World Bank. Additional support was provided by National Science Foundation (NSF) grant number EEC 0097836. Opinions expressed here are those of the authors and not necessarily of the World Bank or NSF.