The author would like to acknowledge the insightful comments and suggestions of Professors Peter Lambert and Nanak Kakwani, which helped enormously to improve the earlier drafts of the article. The author also acknowledges the useful comments of two anonymous referees, which helped improve the article.
A Welfare-Based Approach to Aggregating Growth Rates across Countries*
Version of Record online: 4 MAY 2011
© Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2011
Oxford Bulletin of Economics and Statistics
Volume 74, Issue 1, pages 152–161, February 2012
How to Cite
Son, H. H. (2012), A Welfare-Based Approach to Aggregating Growth Rates across Countries. Oxford Bulletin of Economics and Statistics, 74: 152–161. doi: 10.1111/j.1468-0084.2011.00637.x
- Issue online: 4 JAN 2012
- Version of Record online: 4 MAY 2011
- Final Manuscript Received: December 2010.
Aggregating per capita gross domestic product growth across countries has always been a technical problem because of the complexities in the relative movements of exchange rates, economic output and populations. As such, the conventional approach to aggregating growth across countries suffers from sensitivity to exchange rates, as well as from the possibility of aggregate growth rates not being convex combinations of individual growth rates. This article introduces a new methodology in aggregating per capita growth rates that does not suffer from the drawbacks of the conventional approach. Using a welfare-based approach, it is shown that the proposed methodology is robust w.r.t. exchange rates and generates weights that always add up to unity, thus avoiding the anomalies that are inherent in the conventional approach. The methodology proposed in the article is applied to calculate aggregate growth rates of 33 developing member countries as well as five regional groupings, and the results are compared with those arising from the conventional approach. A number of insights arise that were previously hidden or inaccessible.