The purpose of the International Comparison Program (ICP) is to produce PPPs for major components of the economy. Construction, as part of gross fixed capital formation, is one component. Construction is one of the comparison-resistant components of the ICP because it is not possible to compare actual construction projects from one economy to another. Historically, the ICP used an output method to price construction. It involved specifying models in bills of quantities for various construction projects such as a dwelling, a factory, or a bridge. For its 2005 round, the ICP changed the approach, mainly because of the greater number of participating economies and the cost of collecting price data in all those economies for the various models specified in previous rounds. It used the basket of construction components (BOCC) approach instead. However, because of the problems encountered in data collection and validation a new approach was adopted for ICP 2011.
The 2011 ICP construction and civil engineering survey is based on an input approach in which countries priced 50 basic and common resources for construction work that were selected to correspond with the main inputs to national construction output. In addition, respondents to a national survey provided information on importance, resource mixes, typical markups and professional fees, and approximate project prices. These data were used to calculate and validate the construction and civil engineering PPPs.
The 50 basic and common construction resources are grouped into three subheadings:
· Materials: 38 material inputs
· Equipment: five types of equipment (hire rates)
· Labor: seven categories of construction labor.
The 38 material resources are allocated to the three basic headings (residential buildings, non-residential buildings, and civil engineering works). Therefore, items such as concrete and steel reinforcement appear in all three BHs, while other items, such as sheet roofing and sanitary ware, appear only in the residential and nonresidential buildings BHs. National experts were required to indicate whether a material is commonly used; in other words, whether the material in question is relevant for each type of construction. This process is carried out by deeming materials either important or not important for each basic heading.
Each basic heading has three subheading PPPs: materials, equipment, and labor. An unweighted Country Product Dummy (CPD) was used to calculate PPPs for these subheadings. Aggregation of the subheading PPPs to the BH-level PPPs requires subheading expenditure data. These are calculated by breaking down the BH total expenditures over each subheading, using resource mixes as weights. After the subheading weights were established, the subheading PPPs were aggregated to basic heading, class, group, and finally up to the level of construction category, using the selected aggregating method.
The PPPs were not adjusted for productivity differences across economies because it was assumed that the different weights used took into account differences in the combined labor and capital productivity—that is, total factor productivity—between economies. In other words, the underlying assumption was that total factor productivity was constant across economies.