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Avoiding Anomalies of GDP in Constant Prices by Conversion to Chained Prices

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  • Jesus C. Dumagan

    (PIDS)

Abstract

Changing the base year (1985) of Philippine GDP in constant prices could change the growth rate and the shares of components even when there is no change in the volume of production, implying that the changes in growth rate and shares are anomalous (i.e., no real basis). This possibility weakens GDP in constant prices as basis for valuing our economys production and analyzing its growth performance. This paper demonstrates that conversion to chained prices avoids the above anomalies and also shows smaller and shrinking agriculture and industry sectors and enlarging services sector that is now over 50 percent of the Philippine economy than are shown by valuation in constant 1985 prices. In both contributions to level and growth of GDP, chained prices accentuate more than constant 1985 prices the declining importance of agriculture and industry and the rising importance of services in Philippine economic transformation.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22632.

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Date of creation: Jan 2008
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Handle: RePEc:eab:macroe:22632

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Related research

Keywords: Real GDP; constant prices; chained prices; Fisher index;

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References

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  1. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, Econometric Society, vol. 46(4), pages 883-900, July.
  2. Joe Robjohns, 2007. "Methods explained: Contributions to growth rates under annual chain-linking," Economic and Labour Market Review, Palgrave Macmillan, vol. 1(6), pages 53-56, June.
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, Elsevier, vol. 4(2), pages 115-145, May.
  4. J. C. Dumagan & V. E. Ball, 2009. "Decomposing growth in revenues and costs into price, quantity and total factor productivity contributions," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(23), pages 2943-2953.
  5. Balk, Bert M., 2004. "Decompositions of Fisher indexes," Economics Letters, Elsevier, Elsevier, vol. 82(1), pages 107-113, January.
  6. Dumagan, Jesus C., 2002. "Comparing the superlative Tornqvist and Fisher ideal indexes," Economics Letters, Elsevier, Elsevier, vol. 76(2), pages 251-258, July.
  7. Whelan, Karl, 2002. "A Guide to U.S. Chain Aggregated NIPA Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 217-33, June.
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Cited by:
  1. Dumagan, Jesus C., 2009. "Comparing GDP in Constant and in Chained Prices: Some New Results," Discussion Papers DP 2009-08, Philippine Institute for Development Studies.
  2. Michael R. Cabalfin & Josef T. Yap, 2008. "Sustainable Development Framework for Local Governance," Development Economics Working Papers 22624, East Asian Bureau of Economic Research.
  3. Dumagan, Jesus C., 2008. "Implementing US GDP in Chained Prices for Cross-country GDP Growth and Sectoral Comparisons: Application to Selected ASEAN Countries," Discussion Papers DP 2008-28, Philippine Institute for Development Studies.

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