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GDP and Convergence in Modern Times

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Abstract

In this chapter, I discuss historical estimates of GDP at both the national and the regional level and their application for assessing economic performance in modern times. Having been invented in (and conceived for) industrial capitalist societies, GDP has stronger informative power in those contexts where industry and services, and market exchange, retain the lion’s share of production. In modern times, when comparing the series available for different countries, there are three major methodological problems to be acknowledged and possibly addressed: the dissimilarity of the quantity series and related proxies, deflation through purchasing power parities distant in time, and the differences in the base year used to construct GDP constant price (Laspeyres) indices (the latter issue may be less widely recognized, but it may have a remarkable impact). The way the estimates are constructed also has a bearing upon the statistical tools and models we should use to interpret them; owing to the lack of reliable long-run series, cross-sectional techniques are often preferable to time series analysis; provided we have reliable estimates, growth accounting – decomposing GDP growth into productivity and industry mix effects – may provide important clues about the choice between theoretical approaches; not least for the quality of our data, cross-country convergence models based on conditioning variables should always be supplemented by historical information from qualitative sources and case studies. More generally, cliometricians should prove themselves capable of adapting their models to different historical contexts and relativizing findings to the limits of their estimates.

Financial support from the Spanish Ministry of Economy and Competitiveness, project HAR2013-47182-C02-01, and the Generalitat de Catalunya, project 2014 SGR 591, is gratefully acknowledged.

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Notes

  1. 1.

    For a country, GDP includes the incomes earned by the individuals not officially living in that country. Gross national production (GNP) includes instead the incomes earned abroad by the citizens of that country.

  2. 2.

    To be consistent with the definition of the previous footnote, GDP should be divided by the population de facto (present population) and GNP by the resident population.

  3. 3.

    The United States used GNP instead of GDP as late as 1991. By that time, virtually all the other countries had already adopted GDP.

  4. 4.

    The first official estimates for the United Kingdom were made in 1941 by Richard Stone and James Meade. The former also was the main contributor to developing a standardized system that since 1952 was implemented in OEEC (Organization for European Economic Cooperation) countries (Stone 1956, 1961).

  5. 5.

    However, many others are equally excluded: take, for instance, political and civil freedoms. Nussbaum (2000) increases up to ten the number of basic capabilities: (1) life; (2) bodily health; (3) bodily integrity; (4) sense, imagination, and thought; (5) emotion; (6) practical reason; (7) affiliation; (8) other species; (9) play; and (10) control over one’s environment.

  6. 6.

    In this direction, some progress has recently been made, but with little or no heed, thus far, in the systems of national accounts: see Boyd and Banzhaf (2007) and Ferreira et al. (2008).

  7. 7.

    They could, of course, take advantage of a long tradition of income and macroeconomic estimates, dating back to the seventeenth century (for an outline, see Maddison 2007, pp. 393–401).

  8. 8.

    However, some improvements on this are now on the way (Bolt and van Zanden 2014).

  9. 9.

    For modern times, outstanding examples are Feinstein (1972) for the United Kingdom and Prados de la Escosura (2003) for Spain.

  10. 10.

    Just a handful of examples: for Switzerland, per capita GDP growth from 1820 to 1951 is assumed equal to average for France and Germany (Maddison 2006, p. 409); for Italy, a “guesstimate” for 1820 is created, “assuming that GDP per capita grew at the same pace from 1820–1861 as from 1861–90” (Maddison 1991, p. 234; Maddison 2006, p. 408); but for this country, see Malanima (2006, 2011), his 2011 article having been incorporated in the updated version of Maddison’s database (Bolt and van Zanden 2014). For Albania, per capita GDP from 1870 to 1950 was assumed to move in the same proportion as the average for Bulgaria, Romania, Yugoslavia, Hungary (!), Czechoslovakia (!), and Poland (!); but what is more worrisome, this same average should work also for the entire Russian empire (Soviet Union territories) from 1820 to 1870 and for Greece from 1820 to 1913 (Maddison 2006, pp. 407, 469–471).

  11. 11.

    See, for example, the review of Good and Ma’s (1999) proxy measures of per capita GDP for six Eastern European countries (Bulgaria, Czechoslovakia, Hungary, Poland, Romania, Yugoslavia) plus Austria, which are derived by regression by using three indicators (letters posted per capita, crude birth rate, and the share of nonagricultural employment in the labor force) and are accepted by Maddison only for some countries (Bulgaria, Poland, Rumania, Yugoslavia), owing to the lack of any other information (Maddison 2006, pp. 403–404, 471–472). For a comprehensive picture of Maddison’s amendments to his previous (2001) estimates, see Maddison (2006, p. 624).

  12. 12.

    The project consists of a small working party of four established economic historians and a larger advisory board composed of 22 scholars from around the world. See the website of the project: http://www.ggdc.net/maddison/maddison-project/home.htm.

  13. 13.

    Despite the title of the article (“Re-estimating Growth Before 1820”), updated estimates referring to the last two centuries also are included.

  14. 14.

    For a detailed discussion of Laspeyres indices and their properties as well as of the other main indices used in time series (see Feinstein and Thomas (2002, pp. 507–525)).

  15. 15.

    For updated international comparisons of Italy’s GDP with the rest of the world, in 10-year intervals from the unification of the country (1861) until 2011, see Felice and Vecchi (2013, p. 28).

  16. 16.

    For further details and more countries, reference must be made to the previous version of Maddison’s work (1995, pp. 126–139) and to the country-specific sources cited by the author.

  17. 17.

    For an application of Divisia and Fisher Ideal indices, see Crafts (1985) for England, Prados de la Escosura (2003) for Spain (Fisher Ideal index), and Felice and Carreras (2012) for Italy (Fisher Ideal index). In Prados de la Escosura (2003, pp. 46–47), an application of the Paasche index can also be found: the Paasche index (which uses a changing set of prices to value the quantities) is used to produce price series, which are then combined with the Laspeyres quantity index to estimate GDP at current prices.

  18. 18.

    The Geary-Khamis purchasing power converters for most countries can be found in Maddison (2006, pp. 189 (OECD countries), 190 (five East European countries and USSR), 199 (Latin America), 219–220 (Asia), 228 (Africa)). The reference year was always 1990 only for OECD, East European countries, USSR, Japan, and China; for the others, it varies from 1975 to 1993.

  19. 19.

    Other multilateral measures either give all countries the same weight (such the EKS system used by Eurostat for political reasons), are a shortcut approach based on reduced information (such as ESCWA used for 8 West Asian countries), or employ as a numeraire a currency different from the US dollar (such the ESCAP measure used for 14 East Asian countries, which takes as a reference the Hong Kong dollar) (see Maddison 2006, p. 172).

  20. 20.

    In that article, an excellent discussion of the literature about these issues and the different shortcut methods is also provided (pp. 2–8).

  21. 21.

    Prados de la Escosura (2000), p. 19

  22. 22.

    As confirmed by the results. Just a couple of examples: in 1860, according to Maddison, Greece would have a per capita GDP higher than France (0.855 vs. 0.850), while according to Prados de la Escosura, France had a much higher GDP per capita (0.821 vs. 0.405) in 1860, 1870, and 1880. According to Maddison, Austria (at pre-World War I borders) would be above France, Germany, and Canada, while according to Prados de la Escosura, and much more plausibly, it would be below them (2000, pp. 24–25).

  23. 23.

    The countries are Argentina, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, the United Kingdom, and the United States. The benchmarks are 1880, 1890, 1900, 1913, 1929, 1939, 1950, 1960, 1975, 1980, 1985, and 1990. GDP per capita is expressed in 1990 international dollars, but in the case of Prados de la Escosura, the figures are rescaled with his current price PPPs (2000, pp. 24–31).

  24. 24.

    It should be reminded that all are expressed in logs. In absolute terms, the standard deviation of real GDP per capita increased in both Maddison and (more) in Prados de la Escosura.

  25. 25.

    See Federico (2003) for Italy.

  26. 26.

    See, for example, the regional series for Italy estimated by Daniele and Malanima (2007), which have been produced by interpolating through the available regional benchmarks the national cycles of agriculture, industry, and services.

  27. 27.

    For instance, the industrial production of Italy in the liberal age (1861–1913) (e.g., Ciccarelli and Fenoaltea 2009, 2014). In fact, time series techniques have been applied to the Italian regional construction movements during the liberal age (Ciccarelli et al. 2010). Even in this case, however, it must be pointed out that although the regional series by Ciccarelli and Fenoaltea running from 1861 to 1913 are indeed very accurate, they are estimated at constant 1911 prices, with possible distortions in interregional comparisons for the early years.

  28. 28.

    Different population-weighted standard deviation measures are available and can be used, from the Williamson (1965) to the Theil (1967) index.

  29. 29.

    Data for the United States run from 1880 to 1990, those for Canada from 1961 to 1991, and those for Spain from 1955 to 1987; data for Japan start in 1955.

  30. 30.

    The results from panel models, for the years 1891–2001, are even lower: 0.5% (random effects GLS regression) (Felice 2011). The growth rate of convergence increases to 2% only once fixed effects are considered, that is, when we pass from unconditional to conditional convergence (Felice 2012).

  31. 31.

    For Italy, the western country where the most impressive regional policy (in terms of expenditures as a share of GDP) was carried out (see again Felice (2010)).

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Felice, E. (2019). GDP and Convergence in Modern Times. In: Diebolt, C., Haupert, M. (eds) Handbook of Cliometrics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40458-0_5-3

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  1. Latest

    GDP and Convergence in Modern Times
    Published:
    19 March 2019

    DOI: https://doi.org/10.1007/978-3-642-40458-0_5-3

  2. GDP and Convergence in Modern Times
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    05 March 2015

    DOI: https://doi.org/10.1007/978-3-642-40458-0_5-2

  3. Original

    GDP and Convergence in Modern Times
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    09 May 2014

    DOI: https://doi.org/10.1007/978-3-642-40458-0_5-1