Alan Heston

American Economics Association Distinguished Fellow Citation, 1998.

Alan Heston has been involved since the early 1960s in careful empirical economics analysis of a range of aspects of South Asian economies, both historically and currently. For many economists who are focused on the United States' economy, the topics of some of his studies may seem exotic: economic analyses of camel transport in Pakistan and of the "sacred cow," land fragmentation, gold prices and intra-country agricultural yield variations in India. But over four times as many people live in South Asia as in the Unites States, and a substantial proportion of the world's poorest people live in rural areas of this region. From a global perspective, therefore, these careful analyses of South Asia have been important even if they seem distant from concerns od many economists in the United States.

Heston's path-breaking work for which he is known internationally, however, has been primarily a collaborative effort with Robert Summers (also an AEA Distinguished Fellow in 1998) and, initially, with the late Irving B. Kravis (an AEA Distinguished Fellow in 1991). Their work produced a series of books and articles on the measurement of consistent economic aggregates and prices across nations and over time. This team's major contribution has been in developing real product comparisons and estimating purchasing-power parities for an expanding number of countries.

The work was initiated on Western Europe in the 1950s, then expanded to a larger scale in the United Nations International Comparison Project. By the early 1990s multilateral techniques were worked out, inevitably involving compromises between practical operational and theoretically preferred procedures, for over 80 benchmark countries based on 400-700 prices for specific items per country and 150 well-specified expenditure categories. These benchmark estimates then were extended to over 130 countries. These estimates have made it possible to compare real quantities and price parities among countries of various levels of aggregation. Such comparisons indicate that exchange-rate-based comparisons may be quite misleading. They tend to overstate differences across countries in total product per capita and they tend to misrepresent the composition of output, with over estimates of investment and producer goods and underestimates for non-tradeables for countries with lower per capita incomes relative to those with higher per capita incomes.

The project has represented a major step towards the development of a full global national accounts system that permits interspatial as well as intertemporal quantity comparisons. The techniques and data developed by this project are widely used today, and the procedures have been adapted by a number of international organizations. Summers and Heston's 1991 Quarterly Journal of Economics article on "The Penn World Table (Mark 5): An Expanded Set of International Comparisons" has been one of the most cited papers of the 1990s. This article describes the status of the project as of the early 1990s, shows the sensitivity of the estimates to a range of assumptions, and provides guidance for potential users of these estimates. The Penn World Tables have been a major resource, used by many, to analyze various aggregate empirical dimensions of "new economic growth" models and other aspects of aggregate economic experience and shape much of what we think we currently know about international aggregate economic comparisons and empirical aspects of aggregate economic growth.