Tuesday, January 12, 2016

How Much Should We Trust GDP Data?

I wouldn’t say it’s normal for me to start out a semester by trashing GDP, or by picking on a particular country like China. But, I did.

It’s well-known amongst macroeconomists that many countries’ data is less than accurate.

It turns out there a service that actually keeps track of this. Of course, it can’t tell you a better number for a country’s GDP (because asserting that it’s innaccurate is different from knowing what is accurate).

World Economics, a consulting firm based in London, publishes the Data Quality Index for GDP (along with quite a bit of other interesting and unusual data).

Their index weights 5 factors that affect the quality of GDP measurement: 1) how often the base year is updated, 2) how up-to-date are their accounting standards, 3) how big is their informal economy, 4) per capita real GDP (as a proxy for how well-funded government statisticians are), and 5) corruption.

Who’s the best? Switzerland. America is # 2 (we’re below Switzerland because we’re a little more corrupt). China is in the middle of the pack; the biggest contributor to their low rank is corruption.

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