Who Shrunk China? Puzzles in the Measurement of Real GDP
- We thank Robert Inklaar and two anonymous referees for helpful comments as well as participants at an April 2010 conference in Oxford. George Dan provided excellent research assistance and Ian Crawford kindly provided the GARP calculations in subsection . Financial support from the National Science Foundation Grant Nos. 0648766 and 1061880 and from the Sloan Foundation is gratefully acknowledged. Peter Neary thanks the European Research Council for funding under the EU's Seventh Framework Programme (FP7/2007–2013), ERC grant agreement no. 295669. Prasada Rao gratefully acknowledges financial support from the Australian Research Council under Discovery Project DP0985813.
The latest World Bank estimates of real GDP per capita for China are significantly lower than previous ones. We review possible sources of this puzzle including substitution bias in consumption, reliance on urban prices, which we estimate are higher than rural ones, and the use of an expenditure-weighted rather than an output-weighted measure of GDP. Taking all these together, we estimate that Chinese real per capita GDP was 30% higher in 2005 than the World Bank estimates. Our empirical procedures have implications more broadly for international comparisons of living standards and real GDP.