Analysing Convergence with a Multi-Country Computable General Equilibrium Model: PPP versus Mer

Peter Dixon and Maureen Rimmer

Energy & Environment, 2005, vol. 16, issue 6, 901-921

Abstract: In studies of the greenhouse gas implications of convergence by developing countries to the per-capita GNPs of developed countries, considerable discussion has centred on whether purchasing power parity (PPP) or market exchange rates (MER) should be used in measuring per-capita GNPs. We suggest that technology gaps between developing and developed countries should be the starting point for convergence analysis rather than per-capita GNP gaps. We estimate two sets of initial technology gaps, using PPP and MER price assumptions combined with input-output data. In simulating the effects of closing technology gaps (convergence) using a dynamic, multi-country CGE model, we find: the MER/PPP distinction matters. MER-based estimates of initial technology gaps lead to higher estimates of convergence-induced growth in greenhouse-gas-emitting industries in developing countries than do PPP-based estimates. the industry detail in CGE models is valuable. Our simulations show a wide range of convergence-induced changes in output across industries.

Keywords: convergence; greenhouse gas emissions; technology; purchasing power parity; market exchange rates; dynamic general equilibrium modelling (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:engenv:v:16:y:2005:i:6:p:901-921

DOI: 10.1260/095830505775221524

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