Working Paper: NBER ID: w26578
Authors: Charles R. Hulten; Leonard I. Nakamura
Abstract: The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely bypass GDP and accrue directly to consumers. This disconnect introduces a wedge between the growth in real GDP and the growth in consumer well-being, with the result that a slower rate of growth of the former does not necessarily imply a slower rate of the latter. The conceptual framework for this analysis is developed in a previous paper (Hulten and Nakamura (2017), which extended the conventional framework of GDP to include a separate technology for consumer decisions based on Lancaster (1966b), and developed the idea of Expanded GDP (or EGDP). In this paper, we use this framework to provide a detailed critique of existing GDP and price measurement procedures and summarize the existing evidence on the size of the wedge between GDP and EGDP.
Keywords: GDP; consumer welfare; information revolution; expanded GDP; outputsaving innovation
JEL Codes: E01; O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP growth (O49) | consumer welfare growth (D69) |
| outputsaving innovations (O36) | consumer welfare growth (D69) |
| information revolution (O33) | consumer welfare improvements (D60) |
| consumer technology innovations (O36) | utility from consumption choices (D11) |
| eGDP growth rate (O40) | traditional GDP growth rate (E20) |
| GDP growth (O49) | wedge between GDP growth and consumer welfare growth (F62) |