IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v2y2010i4p1-35.html
   My bibliography  Save this article

Understanding PPPs and PPP-Based National Accounts

Author

Listed:
  • Angus Deaton
  • Alan Heston

Abstract

We provide an overview of the theory and practice of constructing PPPs. We focus on four practical areas: how to handle international differences in quality; the treatment of urban and rural areas of large countries; how to estimate prices for government services, health, and education; and the effects of the regional structure of the latest International Comparison Program for 2005. We discuss revisions of the Penn World Table, and their effects on econometric analysis, and include health warnings. Some international comparisons are close to impossible, even in theory, and in others, the practical difficulties make comparison exceedingly hazardous. (JEL C43, E01, E31, O57).

Suggested Citation

  • Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    • Handle: RePEc:aea:aejmac:v:2:y:2010:i:4:p:1-35
    Note: DOI: 10.1257/mac.2.4.1
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.4.1
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mac/data/2008-0163_data.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:pri:rpdevs:deaton_pppp_version_aug_06.pdf is not listed on IDEAS
    2. Chen, Yi Vivian & Heston, Alan & Lipsey, Robert, 2000. "International and interarea comparisons of income, output and prices," Journal of Asian Economics, Elsevier, vol. 11(3), pages 363-364, December.
    3. Gong, Cathy Honge & Meng, Xin, 2008. "Regional Price Differences in Urban China 1986-2001: Estimation and Implication," IZA Discussion Papers 3621, Institute of Labor Economics (IZA).
    4. Brandt, Loren & Holz, Carsten A, 2006. "Spatial Price Differences in China: Estimates and Implications," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 43-86, October.
    5. Chen, Shaohua & Ravallion, Martin, 2008. "China is poorer than we thought, but no less successful in the fight against poverty," Policy Research Working Paper Series 4621, The World Bank.
    6. Angus Deaton & Jed Friedman & Vivi Alatas, 2004. "Purchasing power parity exchange rates from household survey data: India and Indonesia," Working Papers 173, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    7. Nazmul Chaudhury & Jeffrey Hammer & Michael Kremer & Karthik Muralidharan & F. Halsey Rogers, 2006. "Missing in Action: Teacher and Health Worker Absence in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 91-116, Winter.
    8. Robert C. Feenstra & Alan Heston & Marcel P. Timmer & Haiyan Deng, 2009. "Estimating Real Production and Expenditures across Nations: A Proposal for Improving the Penn World Tables," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 201-212, February.
    9. David Atkin, 2013. "Trade, Tastes, and Nutrition in India," American Economic Review, American Economic Association, vol. 103(5), pages 1629-1663, August.
    10. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    11. Johnson, Simon & Larson, William & Papageorgiou, Chris & Subramanian, Arvind, 2013. "Is newer better? Penn World Table Revisions and their impact on growth estimates," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 255-274.
    12. Dowrick, Steve & Quiggin, John, 1994. "International Comparisons of Living Standards and Tastes: A Revealed-Preference Analysis," American Economic Review, American Economic Association, vol. 84(1), pages 332-341, March.
    13. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
    14. Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
    15. Antonio Ciccone & Marek Jarociński, 2010. "Determinants of Economic Growth: Will Data Tell?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 222-246, October.
    16. Angus Deaton, 2010. "Price Indexes, Inequality, and the Measurement of World Poverty," American Economic Review, American Economic Association, vol. 100(1), pages 5-34, March.
    17. Mary F. Kokoski & Brent R. Moulton & Kimberly D. Zieschang, 1999. "Interarea Price Comparisons for Heterogeneous Goods and Several Levels of Commodity Aggregation," NBER Chapters, in: International and Interarea Comparisons of Income, Output, and Prices, pages 123-169, National Bureau of Economic Research, Inc.
    18. Diewert, Erwin, 2008. "New Methodology for Linking the Regions," Economics working papers erwin_diewert-2008-9, Vancouver School of Economics, revised 09 Sep 2008.
    19. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    20. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
    21. World Bank, 2008. "World Development Indicators 2008," World Bank Publications, The World Bank, number 11855.
    22. Erwin Diewert, 2010. "New Methodological Developments For The International Comparison Program," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 11-31, June.
    23. Brandt, Loren & Holz, Carsten A, 2006. "Spatial Price Differences in China: Estimates and Implications," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 43-86, October.
    24. W. Erwin Diewert, 1999. "Axiomatic and Economic Approaches to International Comparisons," NBER Chapters, in: International and Interarea Comparisons of Income, Output, and Prices, pages 13-107, National Bureau of Economic Research, Inc.
    25. repec:pri:rpdevs:presidential%20address%2017january%202010%20all.pdf is not listed on IDEAS
    26. Meher Manzur (ed.), 2008. "Purchasing Power Parity," Books, Edward Elgar Publishing, number 13162, July.
    27. World Bank, 2007. "World Development Indicators 2007," World Bank Publications, The World Bank, number 8150.
    28. repec:pri:rpdevs:deaton_pppp_version_aug_06 is not listed on IDEAS
    29. repec:pri:rpdevs:presidential%20address%2017january%202010%20all is not listed on IDEAS
    30. Srinivasan, T. N., 1994. "Data base for development analysis Data base for development analysis: An overview," Journal of Development Economics, Elsevier, vol. 44(1), pages 3-27, June.
    31. Nuxoll, Daniel A, 1994. "Differences in Relative Prices and International Differences in Growth Rates," American Economic Review, American Economic Association, vol. 84(5), pages 1423-1436, December.
    32. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    33. Sidney N. Afriat, 1972. "The Theory of International Comparisons of Real Income and Prices," NBER Chapters, in: International Comparisons of Prices and Output, pages 13-84, National Bureau of Economic Research, Inc.
    34. Matthijs van Veelen, 2002. "An Impossibility Theorem Concerning Multilateral International Comparison of Volumes," Econometrica, Econometric Society, vol. 70(1), pages 369-375, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Understanding PPPs and PPP-Based National Accounts (AEJ:MA 2010) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:2:y:2010:i:4:p:1-35. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.