The Future of ICOP and Penn World Tables: Reviving the industry-of-origin approach Marcel Timmer Groningen Growth and Development Centre (GGDC) University of Groningen Presentation at Angus Maddison Memorial Conference, 6-7 November 2010, IISG, Amsterdam

International comparisons of output and productivity (ICOP) project Since 1983 substantial research effort at University of Groningen and collaborators, in tradition of Rostas (1948) and Paige and Bombach (1959) Making level comparisons of output and productivity from the production side (industry-of-origin approach) PPPs based on output prices Industry-level comparisons WHY? To study issues of Structural change Catch-up and convergence Technological change (productivity) Tradeble versus non-tradeble sectors Competitiviness

Difficulties in industry-of-origin approach No international survey of production prices Prices of outputs and inputs (labour, capital, intermediate inputs) Matching output,value added, employment and capital data at industry level Solutions in ICOP project Rely on price rather than quantity approaches Heavy use of unit values (e.g. FAO data for agriculture) Adjusting expenditure PPPs (peeling off margins and taxes) Use of input-output tables to derive PPPs for intermediate inputs Comparisons of labour and capital by type Harmonisation of national production census data and National Accounts data

Available studies and databases at GGDC PAST: more than 60 ICOP studies (mainly binary) have appeared: for more than 100 countries in agriculture, over 30 countries in manufacturing and a dozen in services (Maddison and van Ark, 2002). PRESENT: GGDC Productivity level database (Inklaar and Timmer 2009): 1997 comparisons for 30 OECD countries Output and intermediate inputs (Energy,Material,Services) Labour (3 types) and Capital (2 types) 31 industries covering total economy Can be extrapolated with data for from EU KLEMS database (OMahony and Timmer, 2009) FUTURE: Modern Times project (de Jong and collaborators) for new benchmarks in 1900s-1960s

Real GDP from expenditure and production side Raised neglected issue: the difference between real GDP from expenditure and from production side While real GDP from expenditure measures consumption possibilities, real GDP from production side measures production capacity Difference between the two depends on the terms-of-trade (import over export prices) and share of trade in GDP Currently, the Penn world Tables (PWT) use a mix of the two concepts (see Robert C. Feenstra, Alan W. Heston, Marcel P. Timmer and Haiyan Deng (2009))

Real GDP from expenditure and production side

Real GDP from the expenditure side: Value expenditure categories (q) against international expenditure prices (pi) Real GDP from production side: value output (y) and intermediate inputs (z) against international output and input prices

Augmented GK-system: simultaneous equations

Difference between real GDP_O and GDP_E

Penn World Tables: the next generation Inclusion of terms-of-trade and two measures of real GDP at international prices. This will be based on quality- adjusted trade unit values (export and import). Introduction of production-side estimates 6 sectors, back to 1970, up to 80 countries Nominal value added, employment PPPs based on 2005 ICP round (peeled expenditure PPPs), complemented by FAO, UN, Eurostat and OECD statistics on agricultural, mining and manufacturing unit values