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# Confrontation of Our Results with Proxy PPPs Derived Manufacturing

# from ICP for

One can use the ICP PPPs in order to derive a crude proxy PPP estimate for the manufacturing sector. The authors of the ICP have not themselves ever tried to do this, but several other investigators have done so (see table 1.2 in chapter I). Using the same technique as such analysts, we derived the proxy ?PPs for manufacturing presented in table 8.2.

In fact our average PPP result in the Brazil/USA comparison is identical with the proxy PPP, and not very different for Mexico/Brazil. but for the Mexico/USA comparison they are substantially different. It should be noted that the preliminary results of Van Ark's binary comparisons for India/USA and Brazil/UK also show differences from similarly derived ICP proxies, with the "industry of origin" PPPs being nearer to the exchange rate.

Apart from the possible shortcomings of the proxy PPPs, there is also the substantial problem that they are applied (sc- D.J. Roy, 1987) to the respective national accounts at national prices, without adjustment for differences in the coverage of such accounts. As we found in chapter II, the Mexican national accounts make a very large imputation for manufacturing activity in the informal sector, whereas the Brazilian accounts make virtually no adjustment for this. As there is no reason to expect the relative size of the informal sec_or to be much different in the two countries, use of inconsistent national accounts can have serious results. The typical shortcut proxy procedure would overstate Mexico's output position relative to Brazil's for two reasons: a) by overstating the relative PPP of the peso, and b) overstating Mexico's output in national currency terms vis-&-vis Brazil. Substantive Results for Output and Productivity. Brazil/USA and Mexico/USA The most striking feature of our quantitative results (table 8.3) is the relatively high levels of productivity (output per person engaged) in the manufacturing sectors of the two Latin American countries. Though well below the US level, they are not far from those which comparable studies have revealed for Western European countries for some earlier years (for example Paige and Bombach for 1950, and Smith, Hitchens and Davies for 1967/8, see table 7.3). A few additional remarks should be added to this surprising conclusion. Firstly, the Latin American standing in terms of output per man hour, which could not be measured accurately, is probably lower than the productivity ratio in terms of output per person engaged, because working hours appear to be higher than in the USA. Secondly, in comparison with the USA there is probably a greater amount of informal manufacturing activity outside the scope of the census in Latin America where productivity is lower. Thirdly, Latin American performance per head of population is much lower than their productivity standing, because manufacturing employment is relatively much smaller than it is in the USA.

# Substantive Results for Output and Productivity Mexico/Brazil

Table 8.4 is a binary comparison of Mexico/Brazil which is statistically somewhat better grounded than table 8.3, because of the availability of census data on all inputs and a bigger industry sample for the two Latin American countries than for the USA. Table 8.4 shows that Brazil had a better performance than Mexico both in terms of labour productivity and output per head of population. From the results shown in table 8.3 one can also make the inferential comparisons for Mexico/Brazil shown on the right hand side of table 8.4.