COMPARING THE WEALTH OF NATIONS - REFERENCE PRICES AND MULTILATERAL REAL INCOME INDEXES

This paper considers the problem of comparing real incomes across coun tries. The available methods are reviewed and their performance is com pared using the raw data underlying the Penn World Table. We propose a nd implement a test of the ''Gerschenkron Effect'': the downward bias in a country's measured real income when its own prices are used as we ights. The test confirms that this Effect obtains with fixed-weight in dexes but not with true bilateral indexes based on empirical demand pa rameters. We also demonstrate the feasibility of estimating the GAIA ( ''Geary-Allen International Accounts'') System which yields true multi lateral real income indexes.