Is Newer Better ? Penn World Table Revisions and Their Impact on Growth Estimates

This paper sheds light on two problems in the Penn World Table (PWT) GDP estimates. First, we show that these estimates vary substantially across different versions of the PWT despite being derived from very similar underlying data and using almost identical methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low-frequency data remain robust to data revisions, studies that use annual data are less robust. Second, the PWT methodology leads to GDP estimates that are not valued at purchasing power parity (PPP) prices. This is surprising because the raison d’être of the PWT is to adjust national estimates of GDP by valuing output at common international (PPP) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. We propose an approach to address these two problems of variability and valuation. JEL Codes: O11, O40, O47 www.cgdev.org Simon Johnson, William Larson, Chris Papageorgiou, and Arvind Subramanian Is Newer Better? Penn World Table Revisions and Their Impact on Growth Estimates Simon Johnson,Sloan School of Management, MIT [email protected] William Larson, Department of Economics, George Washington University [email protected] Chris Papageorgiou, Research Department, IMF [email protected] Arvind Subramanian, Center for Global Development,Peterson Institute for International Economics, and Johns Hopkins University [email protected] This paper was previously published as NBER Working Paper 15455 We thank Daron Acemoglu, Francesco Caselli, Michael Clemens, Erwin Diewert, Robert Feenstra, Benjamin Jones, Chad Jones, Aart Kraay, Benjamin Olken, Mick Silver, Antonio Spilimbergo, Nancy Stokey, Alwyn Young, and especially Angus Deaton, Alan Heston, David Romer, and David Weil, for comments, encouragement and suggestions, and seminar participants at Brown University, the Bureau of Economic Analysis, IMF, Oxford University, the University of Pennsylvania (2008 Penn World Table workshop), Princeton University, the Econometric Society Summer Meeting (Boston 2009), the NBER Summer Institute (Economic Growth workshop, and Wealth and Inequality workshop 2009), the Society for Economic Dynamics Meeting (Istanbul 2009) and the World Bank. The views expressed here are those of the authors only. Simon Johnson et al. 2009. “Is Newer Better? Penn World Table Revisions and Their Impact on Growth Estimates.” CGD Working Paper 191. Washington, D.C.: Center for Global Development. http://www.cgdev.org/content/publications/detail/1423224 Center for Global Development 1800 Massachusetts Ave., NW Washington, DC 20036 202.416.4000 (f ) 202.416.4050 www.cgdev.org The Center for Global Development is an independent, nonprofit policy research organization dedicated to reducing global poverty and inequality and to making globalization work for the poor. Use and dissemination of this Working Paper is encouraged; however, reproduced copies may not be used for commercial purposes. Further usage is permitted under the terms of the Creative Commons License. The views expressed in this paper are those of the author and should not be attributed to the board of directors or funders of the Center for Global Development.