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Is the GDP Growth Rate in NIPA a Welfare Measure?

  • Jorge Durán
  • Omar Licandro

The permanent decline of equipment prices relative to nondurable consumption prices rendered fixed-base quantity indexes obsolete, because of the well-known substitution bias. National Income and Product Accounts (NIPA) responded by switching to a flexible-base quantity index to measure GDP growth. We argue this is a welfare measure of output growth. In a two-sector endogenous growth model, we use the Bellman equation to explicitly represent preferences on consumption and investment, we apply a Fisher-Shell true quantity index to this utility representation and show it is equal to the Divisia index, well approximated by the flexible-base quantity index used by NIPA.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 665.

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Date of creation: May 2012
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Handle: RePEc:bge:wpaper:665
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  1. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied technological change learning-by-doing and the productivity slowdown," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Omar LICANDRO & Javier RUIZ-CASTILLO & Jorge DURAN, 2001. "The Measurement of Growth under Embodied Technical Change," Economics Working Papers ECO2001/14, European University Institute.
  3. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
  4. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  5. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
  6. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  7. Matthijs van Veelen & Roy van der Weide, 2008. "A Note on Different Approaches to Index Number Theory," American Economic Review, American Economic Association, vol. 98(4), pages 1722-30, September.
  8. Fisher,Franklin M. & Shell,Karl, 1998. "Economic Analysis of Production Price Indexes," Cambridge Books, Cambridge University Press, number 9780521556231, November.
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