Angus Deaton and Alan Heston (2010) have written an excellent paper on the latest round of the World Bank's 2005 International Comparison Program (ICP), how it was conducted, and how it will affect the Penn World Tables (PWT). They identify three major issues that make it difficult to construct consistent estimates of real output across countries: How exactly should we choose an index number formula that will enable us to compare real outputs across countries? Index number comparisons between countries require information on the prices of products in the same units of measurement and information on expenditure shares by product category. The ICP gets expenditure shares using information on final demand expenditures from the national accounts of the participating countries. However, these national expenditure estimates are not very accurate in some cases, and are not always constructed on a consistent basis across countries. It is very difficult or impossible to compare real outputs across countries at very different stages of development, since poor countries may consume products which are very different from the products consumed in rich countries (i.e., it is impossible to compare the incomparable).
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