Evidence that capital formation is overestimated in low- and middle-income countries in ICP 2011

Theodore R. Breton

Applied Economics Letters, 2016, vol. 23, issue 13, 903-907

Abstract: Using the International Comparison Program (ICP) 2011’s cross-country data on input prices and project cost shares, I show that the ICP 2011 construction prices are substantially underestimated in the 143 low- and middle-income countries where these prices were estimated from input prices. As a consequence, the ICP 2011’s estimate of PPP-adjusted construction is overestimated on average by about 100% and gross fixed capital formation is overestimated by 25–30% in these countries. These nonrandom data errors are of sufficient magnitude to cause serious estimation bias in cross-country growth analyses.

Date: 2016
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DOI: 10.1080/13504851.2015.1119784

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