DP8592 Who Shrunk China? Puzzles in the Measurement of Real GDP

Author(s): Robert Feenstra, Hong Ma, J Peter Neary, DS Prasada Rao
Publication Date: October 2011
Keyword(s): EKS, Geary-Khamis and GAIA Indexes, Gerschenkron Effect, International comparisons of real income and GDP, Measurement economics, substitution bias
JEL(s): C43, F10, O53
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8592

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 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 real per-capita GDP in China was 50% higher relative to the U.S. in 2005 than the World Bank estimates.