Research On Measuring The Real Size Of China’s Economy

It has always been a hot topic to measure and then compare the real size of different economies in terms of volume. As early as in the seventeenth century, William Petty, the founder of national accounts, compared the economic strength of Netherlands and France systematically in his significant work--olitical Arithmetick, which concluded that although Netherlands is small, its treasure and power could compete with that of France. Currently, the measurement and comparison on the real size of different economies is even more remarkable with the process of globalization.Measuring the real size of China’s economy is beneficial for analyzing the laws of different economies’development, correctly identifying China’s stage of economic development, which is crucial for China to learn from other countries’development roads and experiences. More importantly, with the development of China’s economic power and international status, the results of such comparison have more meaning than just a simple comparison on the economic powers. They also have meanings in regard to politics, military, culture and diplomacy; bring a far-reaching impact on the pattern of the world. Under this circumstance, it becomes vital to measure and compare the real size of China’s economy in a relatively objective way.Methods based on PPP have become the most important ways to compare the real sizes of different economies. At present, domestic scholars, research institution and world organizations such as the the World Bank and International Monetary Fund all have made contributions to the study of China’s real economy size. However, judging from the result of these measurements, there are many disputes. On the whole, they can be divided into three categories:first, disputes on the accuracy of the result on benchmark year; second, differences on the results of the extrapolation on non-benchmark year; third, relatively single perspective on the measurement. This thesis tries to respond to these questions. The content of this thesis can be concluded as follows:First, aggregation method is crucial in the study of the real size of a certain economy. It can have a significant influence on the final results. Considering this, this thesis chooses GALA, an economic method that has better properties, to recalculate the result of ICP 2011, the benchmark year. Furthermore, this thesis analyzes the deviation based on GALA and the official method.Second, based on the input-output method and the extended Geary-Khamis, this thesis builds a measurement framework to integrate expenditure approach, production approach and extrapolation method on non-benchmark year. Then this thesis recalculates the real GDP based on the expenditure approach and production approach respectively, and analyzes the discrepancy using factor decomposition.Third, in order to illustrate the similarities and differences between my measurement and others, this thesis summarizes four international authoritative sources about real size of different economies: World Development Indicator (WDI), World Economic Outlook (WEO), PWT and the Maddison project. Then this thesis compares this study with them in terms of extrapolation methods and essential data. In the meanwhile, this thesis clearly points out the application category of different data.The main contents of this thesis are as follows:The chapter one is the introduction of this thesis. In this chapter, we put forward the question on which we will focus. After systematically reviewing the literature on the calculation of the real size of China’s economy, we find that the existing problems and controversies are as follows:(1) accuracy of the result on benchmark year is controversial; (2) differences on the results of the extrapolation on non-benchmark year are very large; (3) the perspective of measurement is relatively single. As a result, this research will focus on solving the above issues.The chapter two is the theoretical basis, evolution of methods on the measurement of real size of economy. In this chapter, we systematically review the literature about the international comparison which is based on the PPP method. The literature review are arranged in order of the theoretical basis—method evolution-multilateral index number.Because the measurement in this thesis is based on the basic data provided by the international comparison program (ICP), it is necessary for us to make a further exploration to the ICP in terms of the basic indicators, measuring results, the rationality and limitation of the data and its application scope. As a result, in chapter three of this thesis, we studies the data which is provided by the ICP mainly from the following four aspects:(1) analysis of the main economic indicators provided by ICP; (2) the preliminary analysis of the results from ICP 2011 round; (3) the rationality of the ICP data; (4) the limitations and scope of application of the ICP data.The chapter four is the bias analysis of the ICP benchmark year results. In this chapter, we re-examin the GEKS method applied in ICP 2011 and 2005 round with GAIA method. In this thesis, we use the GAIA method to get the comparative results of real consumption expenditure per capita in 2011. By doing so, we find that:the GEKS method adopted by the ICP2011 generally overestimates the real actual individual consumption expenditure per capita of the developing countries, among them, the China’s level has been overvalued by 6.24%.The chapter five and chapter six are the core chapters of this thesis. In chapter five, we emphasize the theoretical and practical significance of distinguishing the expenditure method from the output method, In chapter six, with the ICP benchmark data and national accounts data of different countries, we utilize the measurement framework proposed in the fifth chapter to conduct a new estimate on the real size of China’s economy.The chapter five is the construction of measurement framework. In this chapter, we give a measurement framework which integrates the output method, expenditure method and extrapolation of non-benchmark.The chapter six measures the real size of China’s economy from 2000 to 2011. In this chapter, we present results of the real size of China’s economy from 2000 to 2011 on both output side and expenditure side. The research shows that:(1) the real size of China’s economy grows rapidly during the sample period, and China’s real GDP is 13.452 trillion dollar on output side and 13.449 on expenditure side in 2011, ranking second in the world. (2) Our estimate is slightly lower than the official estimate provided by ICP2011. (3) Although the real GDP per capita is improved drastically, the international ranking is still relatively low, ranking 96th in 2011. (4) Moreover, the proportion of China’s real GDP to the total world real GDP is improving. Concretely speaking, it jumped to nearly 15% in 2011 from less than 9% in 2000. The decomposition analysis of the discrepancy between output and expenditure shows that:(1) during the sample period, the real GDP based on expenditure side is higher than that on output side, which illustrates that under certain production capacity, the import and export trade activities can improve the real standard living of the residents. (2) What more, the China’s economy exists "Bigger output doesn’t bring a bigger income" phenomenon. Because, in recent years, the average annual growth rate of real GDP on output side is about 0.5% higher than that on the expenditure side, which leads to the discrepancy continued to decline. (3) From the results of the decomposition, the main reason for this phenomenon is the decline of the real exchange rate, which means the appreciation of RMB.The chapter seven is a systematial comparison of different results. In this chapter, we investigate the World Development Indicators (WDI), the World Economic Outlook (WEO), Penn World Tables (PWT) and Maddison Project in detail. Moreover, we make a careful analysis through a thread of the basic data, extrapolation method and specific measurement steps, and compare the results with our caculation.The chapter eight gives the conclusions of this thesis and looks into the future study.The innovation of this thesis can be summarized as follows: Firstly, based on the framework of economic index GAIA, we combine the AIDS with Geary-Konus price index and Allen volume index to analysis the bias lying in the actual individual consumption in ICP2011. Secondly, we comprehensively utilize input-output method, Geary-Khamis multilateral index and Tornqvist index to combine the expenditure approach, output approach and extrapolation of non-benchmarks into the same framework. From the viewpoint of expenditure and output side, we measure the real size of China’s economy in 2000-2011. Thirdly, based on the Tornqvist index, we utilize Translog function to decompose the balance between real GDP on expenditure-side and real GDP on output-side in 2000-2011. What’s more, the factors that could conduct influence on this balance have been systematically analyzed.