Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income
- (pp. 1411-1428)
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.Citation
Neary, J Peter. 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income." American Economic Review, 94 (5): 1411-1428. DOI: 10.1257/0002828043052286Additional Materials
JEL Classification
- C43 Index Numbers and Aggregation; Leading indicators
- E01 Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- F31 Foreign Exchange
- F40 Macroeconomic Aspects of International Trade and Finance: General