IDEAS home Printed from https://ideas.repec.org/a/bla/worlde/v46y2023i3p619-652.html

Effective GDP: A Cross‐Country Comparison

Author

Listed:
  • Fahd Rehman
  • Russel J. Cooper

Abstract

A large literature has developed around alternatives to gross domestic product (GDP) per capita for cross‐country comparisons of well‐being. Many of these studies point to non‐economic factors that affect well‐being but are not captured in the traditional GDP measure. With a comprehensive coverage of economies available through the World Bank's International Comparison Programme (ICP) databases at six‐yearly intervals, this paper utilises the ICP 2011 Purchasing Power Parity (PPP)‐based expenditures and builds upon it through an analysis of residuals from cross‐country Engel curve regressions. The methodology draws on the idea that patterns in Engel curve residuals can reveal inter alia previously unmeasured aspects of human well‐being such as optimism or pessimism. The paper demonstrates how a residual‐based model of Revealed Optimism/Pessimism can be neatly integrated with PPP‐based GDP to provide an extended measure of national well‐being, referred to here as ‘Effective GDP’. As a result, a wider disparity in well‐being across economies is revealed than could be discerned simply from the ICP data. The results suggest that, in 2011, Effective GDP extends traditional PPP‐based GDP estimates by around two per cent in the positive direction for apparently optimistic economies and as much as five per cent downwards for pessimistic ones.

Suggested Citation

  • Fahd Rehman & Russel J. Cooper, 2023. "Effective GDP: A Cross‐Country Comparison," The World Economy, Wiley Blackwell, vol. 46(3), pages 619-652, March.
    • Handle: RePEc:bla:worlde:v:46:y:2023:i:3:p:619-652
    DOI: 10.1111/twec.13324
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/twec.13324
    Download Restriction: no
    File URL: https://libkey.io/10.1111/twec.13324?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Abbi Kedir & Sourafel Girma, 2007. "Quadratic Engel Curves with Measurement Error: Evidence from a Budget Survey," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(1), pages 123-138, February.
    2. repec:spo:wpmain:info:hdl:2441/4vsqk7docb9nmophtp29pk68cr is not listed on IDEAS
    3. repec:pri:rpdevs:deaton_price_indexes_inequality_and_the_measurement_of_world_poverty_aer. is not listed on IDEAS
    4. John D. Hey, 1984. "The Economics of Optimism and Pessimism," Kyklos, Wiley Blackwell, vol. 37(2), pages 181-205, May.
    5. Kenneth W. Clements & Dongling Chen, 2010. "Affluence and Food: A Simple Way to Infer Incomes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 909-926.
    6. 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.
    7. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    8. repec:pri:rpdevs:presidential%20address%2017january%202010%20all.pdf is not listed on IDEAS
    9. Dale W. Jorgenson, 2018. "Production and Welfare: Progress in Economic Measurement," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 867-919, September.
    10. Dora L. Costa, 2001. "Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1288-1310, December.
    11. William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564, National Bureau of Economic Research, Inc.
    12. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
    13. Robert T. Jensen & Nolan H. Miller, 2008. "Giffen Behavior and Subsistence Consumption," American Economic Review, American Economic Association, vol. 98(4), pages 1553-1577, September.
    14. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June.
    15. World Bank, 2013. "Measuring the Real Size of the World Economy : The Framework, Methodology, and Results of the International Comparison Program—ICP," World Bank Publications - Books, The World Bank Group, number 13329, April.
    16. Martin Ravallion, 2016. "Toward better global poverty measures," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(2), pages 227-248, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andersson, Magnus & Hayakawa, Kazunobu & Keola, Souknilanh & Yamanouchi, Kenta, 2025. "Impacts of international transport infrastructure: Evidence from Laotian households," Journal of Asian Economics, Elsevier, vol. 97(C).
    2. David Atkin & Benjamin Faber & Thibault Fally & Marco Gonzalez-Navarro, 2024. "Measuring Welfare and Inequality with Incomplete Price Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(1), pages 419-475.
    3. Menggen Chen & Yan Wang & D. S. Prasada Rao, 2020. "Measuring the spatial price differences in China with regional price parity methods," The World Economy, Wiley Blackwell, vol. 43(4), pages 1103-1146, April.
    4. Ingvild Almås & Tim Beatty & Thomas Crossley, 2018. "Lost in translation: What do Engel curves tell us about the cost of living?," IFS Working Papers W18/04, Institute for Fiscal Studies.
    5. Amita Majumder & Ranjan Ray & Sattwik Santra, 2016. "Global and Country Poverty Rates, Welfare Rankings of the Regions and Purchasing Power Parities: How Robust Are the Results?," Monash Economics Working Papers 11-16, Monash University, Department of Economics.
    6. Kenneth W Clements & Yihui Lan & Haiyan Liu & Long Vo, 2022. "The Icp, Ppp And Household Expenditure Patterns," Economics Discussion / Working Papers 22-18, The University of Western Australia, Department of Economics.
    7. Nobel Prize Committee, 2015. "Consumption, Poverty, and Welfare," Nobel Prize in Economics documents 2015-2, Nobel Prize Committee.
    8. Marc Fleurbaey, 2009. "Beyond GDP: The Quest for a Measure of Social Welfare," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 1029-1075, December.
    9. Ingvild Almås & Anders Kjelsrud & Rohini Somanathan, 2019. "A Behavior‐Based Approach to the Estimation of Poverty in India," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 182-224, January.
    10. Erling Røed Larsen, 2014. "Is the Engel curve approach viable in the estimation of alternative PPPs?," Empirical Economics, Springer, vol. 47(3), pages 881-904, November.
    11. Wolfers, Justin & Stevenson, Betsey & Sacks, Dan, 2010. "Subjective Well-Being, Income, Economic Development and Growth," CEPR Discussion Papers 8048, C.E.P.R. Discussion Papers.
    12. M. Sirgy, 2011. "Theoretical Perspectives Guiding QOL Indicator Projects," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 103(1), pages 1-22, August.
    13. Jara-Díaz, Sergio & Rosales-Salas, Jorge, 2017. "Beyond transport time: A review of time use modeling," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 209-230.
    14. Ríos-Ocampo, Juan Pablo & Cunico, Giovanni & Gary, Michael Shayne, 2026. "Fragmentation and complexity as obstacles to the beyond GDP transition," Ecological Economics, Elsevier, vol. 239(C).
    15. Trevon D. Logan, 2011. "Economies Of Scale In The Household: Puzzles And Patterns From The American Past," Economic Inquiry, Western Economic Association International, vol. 49(4), pages 1008-1028, October.
    16. Zhang, Yinjunjie & Xu, Zhicheng Phil & Palma, Marco A., "undated". "Misclassification Errors of Subjective Well-being: A New Approach to Mapping Happiness," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258553, Agricultural and Applied Economics Association.
    17. Grace Chua Ee Lin, 2003. "Food and Cross-Country Income Comparisons," Economics Discussion / Working Papers 03-14, The University of Western Australia, Department of Economics.
    18. Paul Scanlon, 2018. "Why Do People Work So Hard?," 2018 Meeting Papers 1206, Society for Economic Dynamics.
    19. DECANCQ, Koen & FLEURBAEY, Marc & SCHOKKAERT, Erik, 2014. "Inequality, income, and well-being," LIDAM Discussion Papers CORE 2014018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Bruno S. Frey & Alois Stutzer, 2009. "Should National Happiness be Maximized?," Chapters, in: Amitava Krishna Dutt & Benjamin Radcliff (ed.), Happiness, Economics and Politics, chapter 14, Edward Elgar Publishing.

    More about this item

    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:bla:worlde:v:46:y:2023:i:3:p:619-652. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.