Note: The author is grateful to Angus Deaton, Erwin Diewert, Yuri Dikhanov, Robert Hill, Branko Milanovic, Luca Ricci, Luis Servén, Eric Swanson, and the journal's two anonymous referees for comments on an earlier draft, and to Prem Sangraula for help in setting up the dataset used here. These are the author's views and should not be attributed to the World Bank or any affiliated organization.
Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes
Article first published online: 14 JUN 2012
© 2012 The Author. Review of Income and Wealth © International Association for Research in Income and Wealth 2012
Review of Income and Wealth
Volume 59, Issue 4, pages 593–613, December 2013
How to Cite
Ravallion, M. (2013), Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes. Review of Income and Wealth, 59: 593–613. doi: 10.1111/j.1475-4991.2012.00510.x
- Issue published online: 4 NOV 2013
- Article first published online: 14 JUN 2012
- economic growth;
- purchasing power parity;
- real exchange rate
The price surveys from the 2005 International Comparison Program (ICP) imply substantially lower levels of GDP at purchasing power parity (PPP) for many developing countries than prior estimates. While some observers have questioned the data, this paper argues that the pattern of changes in PPPs between ICP rounds makes economic sense. Consistently with the original Balassa–Samuelson model, more rapidly growing economies experienced steeper increases in their PPPs relative to official exchange rates. This effect was even stronger for poor countries. Taking account of this effect would reduce the need for such large data revisions when new ICP data become available.