The Center for Global Development and
The Paul H. Nitze School of Advanced International Studies present
a Massachusetts Avenue Development Seminar (MADS)* on
How Much Can We Trust Standard International Measures
of Income and Growth?
Center for Global Development and Peterson Institute for International Economics
Research Department, International Monetary Fund
Tuesday, December 1, 2009
Lunch will be served
Center for Global Development
1800 Massachusetts Avenue, NW, Third Floor, Washington, DC
*Please bring photo identification*
Abstract: (Joint work with Simon Johnson, William Larson, and Chris Papageorgiou.) This paper (pdf, 509K) explores important problems in the most common database used by economists to make international comparisons of income and growth--the Penn World Table (PWT) GDP estimates. We focus on two problems: variability and valuation. We show that these estimates vary substantially across different versions of the PWT despite being derived from similar underlying data and using similar methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low frequency data remain robust to data revisions, studies that use annual data are less robust. The raison d’être of the PWT is to adjust national estimates of GDP by valuing output at common international (purchasing power parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. But we find, surprisingly, that the PWT methodology leads to GDP estimates that are not valued at PPP prices. We propose an approach to address these problems of variability and valuation.
*The Massachusetts Avenue Development Seminar (MADS) series is an effort by the Center for Global Development and The Paul H Nitze School of Advanced International Studies to take advantage of the incredible concentration of great international development scholars in the Metro Washington, DC area. The series seeks to bring together members of this community and improve communication between them.