Concept

Gerschenkron effect

Summary
The Gerschenkron effect, developed by Alexander Gerschenkron, claims that changing the base year for an index determines the growth rate of the index. This effect is applicable only to aggregation method using reference price structure (meaning, each country’s quantities are valued by uniform set of prices to obtain volume) or reference volume structure (meaning, obtaining Purchasing power parity via valuation of uniform set of quantities by each country’s price). However, if production is measured by "real" tearms, this effect does not exist. This description is from the OECD website: The Gerschenkron effect can arise with aggregation methods that use either a reference price structure or a reference volume structure to compare countries. For methods employing a reference price structure, a country's share of total GDP (that is the total for the group of countries being compared) will rise as the reference price structure becomes less characteristic of its own price structure. For
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