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Price Levels, Size, Distribution and Growth of the World Economy: Insights from recent International Comparisons of Prices and Real Product

Author

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  • Alan Heston

    (University of Pennsylvania)

  • D.S. Prasada Rao

    (The University of Queensland)

Abstract

This paper analyzes the recently released macroeconomic aggregate data from the International Comparison Program (ICP) for the years 2011 and 2017 compiled using comparable and consistent survey methods and aggregation procedures. Focusing on the size of the real world economy, in purchasing power parity (PPP) terms, the paper presents estimates of global and regional growth, inflation and exchange rate effects over the period 2011 and 2017. The approach used here has implications for the regular compilation and dissemination of global growth and inflation statistics by organizations like the International Monetary Fund. Growth performance analysis is supplemented with estimates of global and regional inequality. The question about the largest economy is answered using real GDP estimates in PPP terms from the ICP with the conclusion that China and USA were almost at the same level in 2017. Based on the projections to 2019 from the Penn World Table 10.0 and the COVID affected growth rates of these economies in 2020 published by the IMF suggest that China is currently the biggest economy in PPP terms. The paper revisits Balassa and Samuelson in examining a long standing question of interest to economists since the first round of ICP in 1970, namely what determines the price levels measured as the ratio of PPP to exchange rates in different countries. Developing appropriate analytical tools and using macroeconomic aggregate data from the 1975, 2011 and 2017 rounds of the ICP, the paper examines evolution of economic structures of countries in terms of price similarity, the breakdown of services and commodities, and the global price structures. The paper in conclusion touches on the challenges due to COVID for international macroeconomic comparisons in the short to immediate term faced by national and international statistical agencies conducting these exercises.

Suggested Citation

  • Alan Heston & D.S. Prasada Rao, 2021. "Price Levels, Size, Distribution and Growth of the World Economy: Insights from recent International Comparisons of Prices and Real Product," PIER Working Paper Archive 21-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:21-013
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    References listed on IDEAS

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    Cited by:

    1. Abe, Naohito & Rao, D.S. Prasada, 2022. "Towards a simplified approach to international price comparisons: A case for the Multilateral Walsh Index," RCESR Discussion Paper Series DP22-1, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    JEL classification:

    • 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
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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