Terms-of-Trade Changes, Real GDP, and Real Value Added in the Open Economy: Reassessing Hong Kong's Growth Performance

Ulrich Kohli
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Ulrich Kohli: Swiss National Bank

No 52006, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Real GDP tends to underestimate the increase in real domestic value added, real GDI, and welfare when the terms of trade improve. An improvement in the terms of trade is similar to a technological progress. The national accounts treat the two phenomena very unevenly, however, with a change in the terms of trade considered to be a price event and thus not incorporated in the computation of real GDP. The impact of a change in the real exchange rate on real value added is not taken into account by real GDP either. Given its extreme openness and in view of the massive terms-of-trade improvements that it has enjoyed over the past forty years, Hong Kong makes for an interesting case study. Our findings suggest that average real growth has been underestimated by real GDP by approximated 0.4% per annum between 1961 and 2003. This adds up to a gap of close to 20% of GDP over the entire period.

Keywords: Terms of trade; real exchange rate; real GDP; real GDI; real value added; technological change; total factor productivity; index numbers (search for similar items in EconPapers)
JEL-codes: C43 F11 O11 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2006-03
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Citations: View citations in EconPapers (1)

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