Adjusting Output and Productivity Indexes for Changes in the Terms of Trade

Walter Diewert and Catherine Morrison Paul

No 1564, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we employ index number theory in addressing the problem of adjusting real national income and real domestic product for changes in a country's terms of trade. More specifically, using recent developments in the theory of production, we address the problems related to measuring: (i) real output produced and real input utilized by the private business sector;(ii) productivity growth or technical change; (iii) the effects on domestic real output of changes in the terms of trade; and (iv) the impact on final sales to domestic purchasers of changes in the balance of payments deficit, in a consistent accounting framework.This treatment of international trade allows us to undertake comparative statics analyses using only production theory, whereas in the traditional paradigm which treats traded goods as perfectly substitutable with a class of domestic goods, a general equilibrium framework is required. We illustrate our suggested solutions using U.S. data for the years 1968-82.

Date: 1985-02
Note: PR
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Published as Diewert, W. Erwin and Catherine J. Morrison. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Vol. 94, No. 3, Sept. 1986, pp. 659-679.

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Journal Article: Adjusting Output and Productivity Indexes for Changes in the Terms of Trade (1986)
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