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

Listed author(s):
  • Peter B. Dixon
  • Maureen T. Rimmer

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.

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Article provided by in its journal Energy & Environment.

Volume (Year): 16 (2005)
Issue (Month): 6 (November)
Pages: 901-921

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Handle: RePEc:sae:engenv:v:16:y:2005:i:6:p:901-921
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