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Avoiding anomalies of GDP in constant prices by conversion to chained prices /

By: Dumagan, Jesus C.
Series: Vol. 35 No. 2 Second Sem 2008.Description: pp.1-28.Subject(s): Gross domestic product-Econometric models | Gross domestic product-Econometric models | Price indexes-Econometric models | Price indexes-Econometric models | Prices-Econometric modelsOnline resources: Click here to access online In: Philippine Journal of DevelopmentSummary: Changing the base year (1985) of Philippine gross domestic product (GDP) in constant prices could change the growth rate and the shares of components even when there is no change in production volume, implying that the changes in growth rate and shares are anomalous (i.e., no real basis). This weakens GDP in constant prices as basis for valuing our economy's production and analyzing its growth performance. This paper demonstrates that GDP conversion from constant 1985 prices to chained prices avoids the above anomalies and also shows smaller and shrinking agriculture and industry sectors and enlarging services sector that is now over 50 percent of the Philippine economy. Chained prices accentuate more than constant 1985 prices the declining importance of agriculture and industry and the rising importance of services in Philippine economic transformation.
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Changing the base year (1985) of Philippine gross domestic product (GDP) in constant prices could change the growth rate and the shares of components even when there is no change in production volume, implying that the changes in growth rate and shares are anomalous (i.e., no real basis). This weakens GDP in constant prices as basis for valuing our economy's production and analyzing its growth performance. This paper demonstrates that GDP conversion from constant 1985 prices to chained prices avoids the above anomalies and also shows smaller and shrinking agriculture and industry sectors and enlarging services sector that is now over 50 percent of the Philippine economy. Chained prices accentuate more than constant 1985 prices the declining importance of agriculture and industry and the rising importance of services in Philippine economic transformation.

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