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Analysing Convergence with a Multi-Country Computable General Equilibrium Model: PPP versus Mer

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  • Peter B. Dixon
  • Maureen T. Rimmer

Abstract

In studies of the greenhouse gas implications of convergence by developing countries to the per-capita GNPs of developed countries, considerable discussion has centred on whether purchasing power parity (PPP) or market exchange rates (MER) should be used in measuring per-capita GNPs. We suggest that technology gaps between developing and developed countries should be the starting point for convergence analysis rather than per-capita GNP gaps. We estimate two sets of initial technology gaps, using PPP and MER price assumptions combined with input-output data. In simulating the effects of closing technology gaps (convergence) using a dynamic, multi-country CGE model, we find: the MER/PPP distinction matters. MER-based estimates of initial technology gaps lead to higher estimates of convergence-induced growth in greenhouse-gas-emitting industries in developing countries than do PPP-based estimates. the industry detail in CGE models is valuable. Our simulations show a wide range of convergence-induced changes in output across industries.

Suggested Citation

  • Peter B. Dixon & Maureen T. Rimmer, 2005. "Analysing Convergence with a Multi-Country Computable General Equilibrium Model: PPP versus Mer," Energy & Environment, , vol. 16(6), pages 901-921, November.
    • Handle: RePEc:sae:engenv:v:16:y:2005:i:6:p:901-921
    DOI: 10.1260/095830505775221524
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    1. Warwick McKibbin & David Pearce & Alison Stegman, 2004. "Long Run Projections For Climate Change Scenarios," CAMA Working Papers 2004-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Bjart J. Holtsmark & Knut H. Alfsen, 2004. "PPP-correction of the IPCC emission scenarios - does it matter?," Discussion Papers 366, Statistics Norway, Research Department.
    3. Alwyn Young, 1992. "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 13-64, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Richard S.J. Tol, 2007. "Biased Policy Advice from the Intergovernmental Panel on Climate Change," Energy & Environment, , vol. 18(7), pages 929-936, December.
    2. Pant, Hom M. & Fisher, Brian S., 2007. "Alternative measures of output in global economic-environmental models: Purchasing power parity or market exchange rates? -- Comment," Energy Economics, Elsevier, vol. 29(3), pages 375-389, May.
    3. Tol, Richard S.J., 2007. "Carbon dioxide emission scenarios for the USA," Energy Policy, Elsevier, vol. 35(11), pages 5310-5326, November.
    4. Peter Dixon & Maureen Rimmer & Richard S. J. Tol, 2006. "If I Had a Hammer: A Critique of “Analysing Convergence with a Multi-Country Computable General Equilibrium Model: PPP versus MERâ€," Energy & Environment, , vol. 17(2), pages 283-286, March.

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