Significance of Employing a Multilateral Index Formula for Interstate Comparisons: A Case Study of the Australian Farm Sector

The paper demonstrates the drawbacks on using official data and binary indices when attempting an interstate comparison of output and productivity growth. The use of official data in one’s national currency still requires a numerary currency due to price variations across states. Even with the use of index number formulas, some indices have shown to fail the transitivity property when more than 2 states are concerned. Hence the paper aims to demonstrate the significance of using a multilateral index formula like the Geary-Khamis (GK) method, EKS method and CCD method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable proper quantification of real output at the multilateral level. Subsequently, the paper demonstrates the variations in results between official aggregates and multilateral aggregates based on the GK method.