The Wealth and Poverty of Nations: True PPPs for 141 Countries
I set out a new method for estimating true (Konüs) PPPs. Household consumption per head deflated by these PPPs answers the question: by how much must the average expenditure per head of poor country A be increased to enable the typical inhabitant of A to enjoy the same utility level as the typical inhabitant of rich country B? Conventional multilateral PPPs for household consumption, such as the ones published by the World Bank, are not based explicitly on economic theory. So it is not clear that they can answer the question above, particularly if consumer demand is not homothetic. And there is overwhelming empirical evidence against homotheticity. The estimates of the standard of living in this paper are based on the economic theory of consumer demand. The main tool is the expenditure function. It turns out that it is not necessary to estimate all the parameters of the expenditure function but only the relatively small number which measure the consumer's response to income changes. This makes the method feasible even when there are large numbers of products. The method is applied to 141 countries included in the World Bank's 2005 International Comparison Program, at the level of 100 products. The results give strong support for nonhomotheticity and also for the importance of background factors such as climate, demography, culture and religion. The gap between the richest and the poorest countries is wider than when household consumption is deflated by a conventional multilateral index such as the World Bank's PPP for consumption.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Blundell, Richard & Robin, Jean Marc, 1999.
"Estimation in Large and Disaggregated Demand Systems: An Estimator for Conditionally Linear Systems,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 14(3), pages 209-32, May-June.
- R, Blundell & Jean-Marc Robin, 1997. "Estimation in Large and Dissagregated Demand Systems : An Estimator for Conditionally Linear Systems," Working Papers 97-08, Centre de Recherche en Economie et Statistique.
- Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
- Diewert, Erwin, 2008. "New Methodology for Linking the Regions," Economics working papers erwin_diewert-2008-9, Vancouver School of Economics, revised 09 Sep 2008.
- repec:hal:journl:hal-00359353 is not listed on IDEAS
- Andreas Chai & Alessio Moneta, 2010. "Retrospectives: Engel Curves," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 225-40, Winter.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Angus Deaton & Alan Heston, 2008.
"Understanding PPPs and PPP-based national accounts,"
1120, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- 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.
- Angus Deaton & Alan Heston, 2008. "Understanding PPPs and PPP-based national accounts," NBER Working Papers 14499, National Bureau of Economic Research, Inc.
- Angus Deaton & Alan Heston, 2009. "Understanding PPPs and PPP-based national accounts," Working Papers 1186, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Bert M. Balk, 2005. "Divisia price and quantity indices: 80 years after," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(2), pages 119-158.
- 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.
- Angus Deaton, 2010. "Price indexes, inequality, and the measurement of world poverty," Working Papers 1207, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Daniel Cohen & Marcelo Soto, 2007.
"Growth and human capital: good data, good results,"
Journal of Economic Growth,
Springer, vol. 12(1), pages 51-76, March.
- repec:inr:wpaper:249982 is not listed on IDEAS
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
- Clark, Gregory, 2008. "In defense of the Malthusian interpretation of history," European Review of Economic History, Cambridge University Press, vol. 12(02), pages 175-199, August.
- James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
- Ian Crawford & J. Peter Neary, 2008. "Testing for a Reference Consumer in International Comparisons of Living Standards," American Economic Review, American Economic Association, vol. 98(4), pages 1731-32, September.
- Dowrick, Steve & Quiggin, John, 1997. "True Measures of GDP and Convergence," American Economic Review, American Economic Association, vol. 87(1), pages 41-64, March.
When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1080. 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: ()
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.