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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 1970-2007 from EU KLEMS
database (O’Mahony 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
Figure 1: Measures of Real GDP
q2
P1
C
P2
P3
D
U
B'
A
0
B
P1
P3
P2
q1
Real GDP from the expenditure side: Value expenditure
categories (q) against international expenditure prices (pi)
Real GDPje 
M
e
e

q
+
(X
–
M
)/
PPP
j
j
 i ij
j .
i 1
Real GDP from production side: value output (y) and
intermediate inputs (z) against international output and
input prices
Real GDPjo =
M N
MN
i 1
i  M 0 1
o

 i ( y ij  z ij ) +
=
o
m
o
x
[(



)
m

(



 i i ij i i )x ij ]
M
MN
i 1
i  M 0 1
o

 i q ij 
x
m
(

x


 i ij i m ij ) ,
Augmented GK-system: simultaneous equations
o
i
x
i
m
i
C
  ( p ij /
j1
C

j1
x
( p ij
C

o
PPP j
j1

/
m
( p ij
o
PPPj )q ij
o
PPPj ) x ij
/
o
PPPj )m ij
C
 q ij ,
i =1,…,M,
j1
C
 x ij
,
i =M0+1,…,M+N,
j1
C
 m ij
,
j1
o
Nominal GDPj
M o
M N
x
 q  i  M 1 ( i x ij
i 1 i ij
0


i =M0+1,…,M+N,
m
  i m ij )
, j =1,…,C.
Difference between real GDP_O and GDP_E
e
j
Real GDP – Real GDP
o
j
 PPP jx
 X j   PPP jm
 M j 



.


1

1
 PPP e
 PPP x   PPP e
 PPP m 
j
j 
j
j 




real
e
GDPj
x
PPPj
>
> real
e
PPPj
o
GDPj
and
if
m
PPPj
<
e
PPPj
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 qualityadjusted 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