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Terms of trade, real GDP, and real value added: A new look at New Zealand's growth performance

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  • Ulrich Kohli

Abstract

The conventional measure of real GDP underestimates the growth in real value added when the terms of trade improve. Thus, in New Zealand, where the terms of trade have been improving over the past 15 years, real GDP has underestimated the country's real growth performance by nearly 0.4% per year on average. Our analysis has a solid theoretical foundation, being based on the GDP-function approach to modelling the production sector of an open economy.

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  • Ulrich Kohli, 2003. "Terms of trade, real GDP, and real value added: A new look at New Zealand's growth performance," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(1), pages 41-66.
    • Handle: RePEc:taf:nzecpp:v:37:y:2003:i:1:p:41-66
    DOI: 10.1080/00779950309544378
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    References listed on IDEAS

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    1. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
    2. Fox, Kevin J & Kohli, Ulrich & Warren, Ronald S, Jr, 2002. "Accounting for Growth and Output Gaps: Evidence from New Zealand," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 312-326, September.
    3. Kevin J. Fox & Ulrich Kohli & Ronald S. Warren Jr., 2002. "Accounting for Growth and Output Gaps: Evidence from New Zealand," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 312-326, September.
    4. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    5. Ulrich R. Kohli, 1978. "A Gross National Product Function and the Derived Demand for Imports and Supply of Exports," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 167-182, May.
    6. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
    7. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
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    Cited by:

    1. Alan Ross Hall, 2018. "International Trade, Real GDP, the Terms of Trade, and the Australian Economy 2011 to 2017," Economic Papers, The Economic Society of Australia, vol. 37(3), pages 220-229, September.
    2. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
    3. Timothy Kehoe & Kim Ruhl, 2003. "Recent great depressions: Aggregate growth in New Zealand and Switzerland, 1973-2000," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(1), pages 5-40.
    4. Samuel Verevis & Murat Üngör, 2021. "What has New Zealand gained from The FTA with China?: Two counterfactual analyses†," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(1), pages 20-50, February.
    5. Ulrich Kohli, 2022. "Trading Gains and Productivity: A Törnqvist Approach," International Productivity Monitor, Centre for the Study of Living Standards, vol. 42, pages 63-86, Spring.

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