Construction purchasing power parities: Potential roles and limitations

Before comparing or aggregating the output of construction industries in different countries, a common unit of measurement is needed. Two approaches to finding a suitable means of measuring construction internationally are considered: exchange rates and construction purchasing power parities (PPPs). A specific construction industry PPP (CPPP) is required, as a general PPP based on consumer goods prices is not necessarily appropriate as a measure of an industry. To establish CPPPs, a basket of inputs is required. Steel is examined as an example of an input. Steel prices and exchange rate data were collected from the European Union, Southern China and the United States. Six forms of steel were compared. Plate steel was found to have a PPP mean value closest to the exchange rates, but no one type of steel was found to be the most appropriate to use in calculating CPPPs. Although the arguments in favour of CPPPs over the use of exchange rates are strong, from the analysis it is not possible to establish a clear superiority of CPPPs. This makes it necessary to check the suitability of CPPPs compared with exchange rates before comparing or aggregating the construction industries of different countries.