Evidence that capital formation is overestimated in low- and middle-income countries in ICP 2011

ABSTRACT

Using the International Comparison Program (ICP) 2011’s cross-country data on input prices and project cost shares, I show that the ICP 2011 construction prices are substantially underestimated in the 143 low- and middle-income countries where these prices were estimated from input prices. As a consequence, the ICP 2011’s estimate of PPP-adjusted construction is overestimated on average by about 100% and gross fixed capital formation is overestimated by 25–30% in these countries. These nonrandom data errors are of sufficient magnitude to cause serious estimation bias in cross-country growth analyses.

KEYWORDS:

• ICP 2011
• construction prices
• PPP
• construction data
• capital data

JEL CLASSIFICATION:

• E30
• O47

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ UK, Finland, Netherlands, US, Canada, Denmark, Australia, Portugal, Hungary and Russia.

² Denmark and Australia have GDP/capita above $60 000.