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Multilateral approaches to the theory of international comparisons

University of British Columbia

The present thesis provides a definite answer to the question of how comparisons of certain aggregate quantities and price levels should be made across two or more geographic regions. It does so from the viewpoint of both economic theory and the “test” (or “axiomatic”) approach to index-number theory. Chapter 1 gives an overview of the problem of multilateral interspatial comparisons and introduces the rest of the thesis. Chapter 2 focuses on a particular domain of comparison involving consumer goods and services, countries and households in developing a theory of international comparisons in terms of the the (Kontis-type) cost-of-living index. To this end, two new classes of purchasing power parity measures are set out and the relationship between them is explored. The first is the many-household analogue of the (single-household) cost-of-living index and, as such, is rooted in the theory of group cost-of-living indexes. The second Consists of sets of (nominal) expenditure-share deflators, each corresponding to a system of (real) consumption shares for a group of countries. Using this framework, a rigorous exact index- number interpretation for Diewert’s “own-share” system of multilateral quantity indexes is provided. Chapter 3 develops a novel multilateral test approach to the problem at hand by generalizing Eichhorn and Voeller’s bilateral counterpart in a sensible manner. The equivalence of this approach to an extended version of Diewert’s multilateral test approach is exploited in an assessment of the relative merits of several alternative multilateral comparison formulae motivated outside the test-approach framework. Chapter 4 undertakes an empirical comparison of the formulae examined on theoretical grounds in Chapter 3 using an appropriate cross-sectional data set constructed by the Eurostat—OECD Purchasing Power Parity Programme. The principal aim of this comparison is to ascertain the magnitude of the effect of choosing one formula over another. In aid of this, a new indicator is proposed which facilitates the measurement of the difference between two sets of purchasing power parities, each computed using a different multilateral index-number formula.

Thesis/Dissertation

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2009-04-15

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http://hdl.handle.net/2429/7180

Economics

University of British Columbia

UBCV

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