Using 1988 data based on Summers an

Using 1988 data based on Summers and Heston (1991). we compiled the
sectoral indices of PPP prices reported in Table 2.5. The PPP price indices in
this table are given in terms of unitary 1977 U.S. prices for the same sectors.
This choice of seclor-specific price indices allows us to correct for sectoral
size distonions that would arise from assuming price equalization. These val-
ucs were in turn calibrated into the base prices of the AGE model described
in the next section. It is apparent from casual inspection that. even at this
relatively aggregated level of 26 sectors, prices across the three North Amer-
ican economies are far from identical. Assuming such price homogeneity (ex-
cepl for import distortions) could thus seriously distort the relative magnitudes
of demand and supply and, hence, their response to multilateral trade liberal-
ization. Consider the Mexican commerce sector, for example, which accounts
for 25 percent of the country's (otal value added, according to Table 2.3.
Comparing its PPP price (.41) with the Mexican average (.84) indicates that.