[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v94y2004i5p1411-1428.html
   My bibliography  Save this article

Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income

Author

Listed:
  • J. Peter Neary
Abstract
Real incomes are routinely compared internationally using methods that "correct" for deviations from purchasing power parity. The most widely used of these is the Geary method which, though theoretically suspect, underlies the Penn World Table. This paper provides a theoretical foundation for the Geary method which I call the GAIA ( "Geary-Allen International Accounts" ) system. I show that the Geary method is exact when preferences are non-homothetic Leontief and, more generally, gives a ( possibly poor ) approximation to the GAIA benchmark. An empirical application suggests that both it and other widely used methods underestimate the degree of international inequality.

Suggested Citation

  • J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
    • Handle: RePEc:aea:aecrev:v:94:y:2004:i:5:p:1411-1428
    Note: DOI: 10.1257/0002828043052286
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828043052286
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/data/dec04_data_neary.zip
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/contents/appendices/dec04_app_neary.pdf
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Neary, J-P & Gleeson, B, 1997. "Comparing the Wealth of Nations : Reference Prices and Multilateral Real Income Indexes," Papers 97/19, College Dublin, Department of Political Economy-.
    2. Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-593, September.
    3. J. Peter Neary, 1996. "Theoretical foundations of the "Geary method" for international comparisons of purchasing power and real incomes," Working Papers 199603, School of Economics, University College Dublin.
    4. Robert J. Hill, 1997. "A Taxonomy Of Multilateral Methods For Making International Comparisons Of Prices And Quantities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 49-69, March.
    5. Richard W. Blundell & Martin Browning & Ian A. Crawford, 2003. "Nonparametric Engel Curves and Revealed Preference," Econometrica, Econometric Society, vol. 71(1), pages 205-240, January.
    6. Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 327-368.
    7. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    8. Dowrick, Steve & Quiggin, John, 1997. "True Measures of GDP and Convergence," American Economic Review, American Economic Association, vol. 87(1), pages 41-64, March.
    9. Heston, Alan & Summers, Robert, 1996. "International Price and Quantity Comparisons: Potentials and Pitfalls," American Economic Review, American Economic Association, vol. 86(2), pages 20-24, May.
    10. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
    11. Kravis, Irving B, 1984. "Comparative Studies of National Incomes and Prices," Journal of Economic Literature, American Economic Association, vol. 22(1), pages 1-39, March.
    12. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    13. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
    14. László Drechsler, 1973. "Weighting Of Index Numbers In Multilateral International Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(1), pages 17-34, March.
    15. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    16. Dowrick, Steve & Dunlop, Yvonne & Quiggin, John, 2003. "Social indicators and comparisons of living standards," Journal of Development Economics, Elsevier, vol. 70(2), pages 501-529, April.
    17. Diewert, W. E. & Wales, T. J., 1988. "A normalized quadratic semiflexible functional form," Journal of Econometrics, Elsevier, vol. 37(3), pages 327-342, March.
    18. Angus Deaton, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 391-405.
    19. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    20. Nuxoll, Daniel A, 1994. "Differences in Relative Prices and International Differences in Growth Rates," American Economic Review, American Economic Association, vol. 84(5), pages 1423-1436, December.
    21. John Muellbauer, 1975. "Aggregation, Income Distribution and Consumer Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 525-543.
    22. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    23. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-183, May.
    24. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neary, Peter, 2000. "True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics," CEPR Discussion Papers 2590, C.E.P.R. Discussion Papers.
    2. Neary, P.J., 1996. "True Multilateral Indexex for International Comparisons of Purchasing Power and Real Income," Papers 96/22, College Dublin, Department of Political Economy-.
    3. Nicholas Oulton, 2012. "How To Measure Living Standards And Productivity," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(3), pages 424-456, September.
    4. Serletis, Apostolos & Xu, Libo, 2020. "Functional monetary aggregates, monetary policy, and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    5. Barnett, William A. & Serletis, Apostolos, 2008. "Consumer preferences and demand systems," Journal of Econometrics, Elsevier, vol. 147(2), pages 210-224, December.
    6. Andrea Mantovi, 2016. "Smooth preferences, symmetries and expansion vector fields," Journal of Economics, Springer, vol. 119(2), pages 147-169, October.
    7. Kakwani, Nanak & Hill, Robert J., 2002. "Economic theory of spatial cost of living indices with application to Thailand," Journal of Public Economics, Elsevier, vol. 86(1), pages 71-97, October.
    8. LaFrance, Jeffrey T., 2008. "The structure of US food demand," Journal of Econometrics, Elsevier, vol. 147(2), pages 336-349, December.
    9. Barnett, William A. & Serletis, Apostolos, 2008. "Measuring Consumer Preferences and Estimating Demand Systems," MPRA Paper 12318, University Library of Munich, Germany.
    10. Barnett, William A. & Erwin Diewert, W. & Zellner, Arnold, 2011. "Introduction to measurement with theory," Journal of Econometrics, Elsevier, vol. 161(1), pages 1-5, March.
    11. Hideyuki Mizobuchi, 2017. "A superlative index number formula for the Hicks-Moorsteen productivity index," Journal of Productivity Analysis, Springer, vol. 48(2), pages 167-178, December.
    12. Van Ha, Nguyen & Kant, Shashi & Maclaren, Virginia, 2008. "Shadow prices of environmental outputs and production efficiency of household-level paper recycling units in Vietnam," Ecological Economics, Elsevier, vol. 65(1), pages 98-110, March.
    13. Hideyuki Mizobuchi, 2016. "A Superlative Index Number Formula for the Hicks-Moorsteen Productivity Index," CEPA Working Papers Series WP032016, School of Economics, University of Queensland, Australia.
    14. Paul Schreyer, 2021. "Framing Measurement Beyond GDP," CEPA Working Papers Series WP172021, School of Economics, University of Queensland, Australia.
    15. W. Erwin Diewert & Kevin J. Fox, 2017. "Decomposing Value Added Growth into Explanatory Factors," Discussion Papers 2017-02, School of Economics, The University of New South Wales.
    16. Prados de la Escosura, Leandro, 2000. "International Comparisons of Real Product, 1820-1990: An Alternative Data Set," Explorations in Economic History, Elsevier, vol. 37(1), pages 1-41, January.
    17. W. Briec & K. Kerstens, 2009. "Infeasibility and Directional Distance Functions with Application to the Determinateness of the Luenberger Productivity Indicator," Journal of Optimization Theory and Applications, Springer, vol. 141(1), pages 55-73, April.
    18. Cranfield, J. A. L. & Pellow, Scott, 2004. "The role of global vs. local negativity in functional form selection: an application to Canadian consumer demands," Economic Modelling, Elsevier, vol. 21(2), pages 345-360, March.
    19. Valeria Di Cosmo, 2011. "Are the Consumers Always Ready to Pay? A Quasi-Almost Ideal Demand System for the Italian Water Sector," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(2), pages 465-481, January.
    20. Oulton, Nicholas, 2011. "The wealth and poverty of nations: true PPPs for 141 countries," LSE Research Online Documents on Economics 48941, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:94:y:2004:i:5:p:1411-1428. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.