The Relative Price of Services

20 Pages Posted: 11 Nov 2014

See all articles by Robert Inklaar

Robert Inklaar

University of Groningen - Department of Economics

Marcel P. Timmer

University of Gronigen - Faculty of Economics

Date Written: December 2014

Abstract

Prices of GDP relative to the exchange rate increase with income per capita, which is known as the Penn‐effect. This is generally attributed to services being cheaper relative to goods in poorer countries. In this paper we re‐examine the Penn‐effect based on a new set of PPPs for industry output. These are estimated in an augmented Geary–Khamis approach using prices for final goods, exports, and imports. The resulting multilateral PPPs cover 35 industries in 42 countries for the year 2005. We find large variation in relative prices of various services industries. In particular the Penn‐effect appears to be mostly due to the rapidly rising output prices of non‐market services. This seems related mainly to the high labor intensity of that sector.

Keywords: Geary‐Khamis system, Penn‐effect, PPP, prices, services

JEL Classification: C43, F4, O11, O47

Suggested Citation

Inklaar, Robert and Timmer, Marcel P., The Relative Price of Services (December 2014). Review of Income and Wealth, Vol. 60, Issue 4, pp. 727-746, 2014, Available at SSRN: https://ssrn.com/abstract=2522711 or http://dx.doi.org/10.1111/roiw.12012

Robert Inklaar (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands

Marcel P. Timmer

University of Gronigen - Faculty of Economics ( email )

Postbus 72
9700 AB Groningen
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
237
PlumX Metrics