Tuesday, February 28, 2012

Europe at the crossroads

… measurement problems may be the reason why there are differences among the major statistical bases to estimate the level of GDP per capita and their determinants. For the IMF, the Euro Area does not have a productivity problem since, according to its estimates, hourly productivity is higher in the Euro Area than in the US, and all the differences in per capita GDP are due solely to the lower number of hours worked in the EU. For EUROSTAT, based on its structural indicators, however, a completely different picture emerges, suggesting that 45 percent of the gap in living standards between the Euro Area and the US are due to lower productivity per hour, with the 55 percent due to lower number of hours worked. Finally, the OECD estimates suggest a position that lies roughly between the two previous estimates, …, one-third of the GDP per capita difference with the US is due to lower productivity and two-thirds are due to the lower number of hours worked.

What are the measurement problems? Some but not all are due to the use of hedonic pricing in constructing price indices especially in the US where it is applied to ICT and cars and durable goods. Another is the fact that the US uses a higher depreciation for capital in the first year while the EU uses the same rate of depreciation every year.

This is from Europe at the Crossroad by Guillermo de la Dehesa, a summary of various OECD and IMF reports. Less insightful than expected.

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