The Treatment of Import and Export Prices in International Comparisons of GDP

The year 2025 marked the 50th anniversary of the Penn World Table (PWT). A key question in the construction of these international accounts is how the value of imports and exports for each country is converted into a common currency. PWT currently measures real GDP on the output side by using disaggregate, quality‐adjusted prices of imports and exports to construct PPP exchange rates that convert imports and exports into US$. In contrast, the International Comparison Program (ICP) of the World Bank uses the nominal exchange rates to convert trade balances into US$. Implementing the ICP approach in PWT data, we find that it results in real GDP that is somewhat higher than the output‐based measure in PWT for all but three countries—China, Japan and South Korea—and very close to PWT for these three and various other countries. When measuring global inequality with per‐capita real GDP, the ICP approach gives nearly identical results to the output‐based measure in PWT. Since the ICP approach is quite simple to compute, it will be included in future revisions of PWT.