What effect do non-tradable goods have on ppp, International Economics

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What effect do non-tradable goods have on PPP?

Answer:  The consequence is quite substantial.  In 1997 the production of non-tradable goods accounted for about 55% of U.S GNP.  Together with haircuts non-tradable goods include housing, routine medical treatment and so on.  For the nearly all parts non-tradable goods are comprised of services and the output of the construction industry.  Non-tradable assists explain much of the wide departure from PPP that is present in empirical data.

 


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