USSR: Measures of Economic Growth and Development, 1950-80

Approved for Release: 2019/07/19 C05210421
Problems in Estimating Volume Indexes
of Economic Activity in the USSR
The real growth of Soviet GNP is computed by
multiplying each of the 1970 sector-of-origin and end-
use weights by an appropriate constant-price activity
index. While use of this method is not unusual in
OECD countries, it is more common to deflate cur-
rent-price data. The lack of detailed Soviet price
indexes and our distrust of those that do exist pre-
cludes that approach here.
The problems of estimating constant-price indexes
have generated a voluminous amount of literature.”
In connection with the presentation of our Soviet
GNP indexes it is appropriate to summarize some of
the general problems encountered in working with
index numbers.
Effect of the Base Year on the Growth Rate
In the computation of GNP, the aggregation of
physical quantities expressed in different units re-
quires the use of prices as weights. Thus the growth of
GNP between any two years in constant prices is the
ratio of two summations of prices times quantities. If
relative prices or quantities of the various goods and
services produced in the two years are the same in
each year, then it does not matter whether the prices
of the first or second year are used for aggregation. In
general, however, technological progress; changing
endowments of land, labor, and capital; and other
factors will cause changes in relative prices. In prac-
tice, then, the measured GNP growth rate will vary,
depending on whether prices of the first or second
year are used.
In computing a series of growth rates for a multiyear
period, it is possible to use the prices of one year for
"’ Some of the general sources are: Lawrence Grose, Real Output
Measurement in the United States National Income and Product
Accounts, US Department of Commerce, Washington, D.C., 1967;
T. P. Hill, The Measurement of Real Product, The Organization
for Economic Cooperation and Development, Paris, 1971; R. G. D.
Allen, Index Numbers in Theory and Practice, Aldine Publishing
Co., Chicago, 1975; United Nations, Guidelines on Principles of a
System Qf Price and Quantity Statistics, New York, 1977; Richard
Stone, Quantity and Price Indexes in National Accounts, Organi-
zation for European Economic Cooperation, Paris, 1956; Franklin
M. Fisher and Karl Shell, The Economic Theory of Price Indices,
Academic Press, New York, 1972; and Dan Usher, The Measure-
ment of Economic Growth, ch. 4, Columbia University Press, New
York, I980.
all calculations or to use a moving price base. With a
moving price base, the weights used to combine the
constant-price volume indexes are different for each
calculation. In this report, 1970 prices are used for all
growth rate calculations. The primary reason for this
approach is that the construction of current-year
weighted (Paasche) indexes requires current-price
GNP accounts for each year, information which is not
currently available. In addition, Western practice is to
use the base-year weighted (Laspeyres) index."
For analysis of current trends, the base year should be
reasonably close to the current year so that the base-
year relative prices are not greatly different from
those of the current year. For the Soviet Union, 1970
is sufficiently recent to qualify as Soviet prices have
not changed much since then. The large energy price
changes of 1973-74 make it more important to use a
price base of 1975 or later for a Western economy.”
Aggregation of Quantity Indexes Instead of Deflated
Value Indexes
There are two basic methods of computing a constant-
price activity index of the output of a collection of
goods or services. Assuming that observations are
available on the quantities produced and the prices of
each good or service, then the current-price output
can be deflated by a price index, or a weighted
quantity index can be computed. With full informa-
tion, the result will be the same. For the year 0, let
Q(0,l), . . . , Q(0,i), . . . , Q(0,N) be the physical
quantities of the N goods produced in year 0 and
p(0,l), . . . , p(0,i), . . . , p(0,N) the corresponding
prices. Then the growth of output from year 0 to year
t, expressed in current prices, is:
N
2 Q(t,i)p(t,i)
i=1
N
Z Q(0,i)p(O,i)
i = 1
" Bergson, 1961, pp. 25-41, discusses the various economic interpre-
tations of the two indexes. Also, see Becker, 1969, pp. 69-72, and
the sources listed in footnote 50.
” The benchmark of the US accounts in 1981 retained 1972 as the
base year, implying that the data for using a more recent base year
are not available or that the US national income accountants do not
think the change in relative prices is a severe problem. Many
OECD countries, however, have shifted to a 1975 base year.
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Approved for Release: 2019/07/19 C05210421