A Welfare-Based Approach to Aggregating Growth Rates Across Countries

22 Pages Posted: 12 Apr 2011

Date Written: February 1, 2011

Abstract

Aggregating per capita gross domestic product growth across countries has always been a technical problem due to complexities in the relative movements of exchange rates, economic output, and populations. As such, the conventional approach to aggregating growth across countries suffers from sensitivity to exchange rates, as well as from the possibility of aggregate growth rates not being convex combinations of individual growth rates. This paper introduces a new methodology in aggregating per capita growth rates that does not suffer from the drawbacks of the conventional approach. Using a welfare-based approach, it is shown that the proposed methodology is robust with respect to exchange rates and generates weights that always add up to unity, thus avoiding the anomalies that are inherent in the conventional approach. The methodology proposed in the paper is applied to calculate aggregate growth rates of 33 developing member countries as well as five regional groupings, and the results are compared with those arising from the conventional approach. A number of insights arise that were previously hidden or inaccessible.

Keywords: aggregation, gross domestic product, growth, welfare, Economic Working Paper No. 248

JEL Classification: E1, O1, O4, I3

Suggested Citation

Son, Hyun H., A Welfare-Based Approach to Aggregating Growth Rates Across Countries (February 1, 2011). Asian Development Bank Economics Working Paper Series No. 248. Available at SSRN: https://ssrn.com/abstract=1807453 or http://dx.doi.org/10.2139/ssrn.1807453

Hyun H. Son (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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