Estimating Real Production and Expenditures Across Nations: A Proposal for Improving the Penn World Tables

28 Pages Posted: 20 Apr 2016

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Alan W. Heston

University of Pennsylvania - Department of Economics

Marcel P. Timmer

University of Gronigen - Faculty of Economics

Haiyan Deng

The Conference Board

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2007

Abstract

From its inception, the Penn World Tables (PWT), building on the International Comparisons Program (ICP)of the United Nations, has sought to compare the standard of living of individuals in different countries. That is, the termreal GDP per capitaas reported in the PWT is intended to represent the ability to purchase goods and services by a representative agent in the economy. The same is true of benchmark comparisons as published by the United Nations, Eurostat, or OECD. But this expenditure-side interpretation of real GDP is quite different from the uses to which benchmark ICP and PWT data are frequently applied, such as in growth regressions, wherereal GDPis intended to reflect the production side of the economy. In this paper the authors propose a new approach to international comparisons of real GDP measured from the output side. They modify the traditional Gary-Khamis system, which measures real GDP from the expenditure side using real domestic expenditure, to include differences in the terms of trade between countries. The analysis shows that this system has a strictly positive solution under mild assumptions. On the basis of a set of domestic final output, import, and export prices and values for 151 countries in 1996, differences between real GDP measured from the expenditure and output side can be substantial, especially for small open economies.

Keywords: Economic Theory & Research, Markets and Market Access, Free Trade, Access to Markets, Trade Policy

Suggested Citation

Feenstra, Robert C. and Heston, Alan W. and Timmer, Marcel P. and Deng, Haiyan, Estimating Real Production and Expenditures Across Nations: A Proposal for Improving the Penn World Tables (March 1, 2007). World Bank Policy Research Working Paper No. 4166, Available at SSRN: https://ssrn.com/abstract=970808

Robert C. Feenstra

University of California, Davis - Department of Economics ( email )

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Davis, CA 95616-8578
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National Bureau of Economic Research (NBER)

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Alan W. Heston

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Marcel P. Timmer

University of Gronigen - Faculty of Economics ( email )

Postbus 72
9700 AB Groningen
Netherlands

Haiyan Deng

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

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