Working Paper: CEPR ID: DP8592
Authors: Robert Feenstra; Hong Ma; J. Peter Neary; D.S. Prasada Rao
Abstract: 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 and conclude that it reflects a combination of factors, including substitution bias in consumption, reliance on urban priceswhich 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 real per-capita GDP in China was 50% higher relative to the U.S. in 2005 than the World Bank estimates.
Keywords: EKS; Geary-Khamis; GAIA indexes; Gerschenkron effect; International comparisons of real income; GDP measurement; Economics; Substitution bias
JEL Codes: C43; F10; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price data provided by China (P22) | estimates of real GDP (E20) |
| reliance on urban prices (R29) | understatement of actual prices faced by rural consumers (P22) |
| substitution bias in consumption (D11) | underestimation of real GDP (E20) |
| adjusting the price data to account for urban-rural differentials (R29) | increase in real consumption estimates (E20) |
| using an expenditure-weighted measure (C43) | differences in estimated GDP figures (P24) |
| China's real GDP could be as much as 50% higher (P24) | World Bank's estimates (O57) |
| the World Bank's estimate is too low (F35) | actual real GDP (E20) |
| terms of trade (F14) | GDP estimates (E20) |
| real GDP on the output side exceeds that on the expenditure side (P44) | support for the claim that China's real GDP is underestimated (P24) |