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World Economics Blogs

The Strange Story of Cote d’Ivoire’s Disappearing Coins
The Strange Story of Cote d’Ivoire’s Disappearing Coins Lionel Stanbrook Consultant, African Development Bank Cote d’Ivoire is by some accounts one of Africa’s best performing economies, with a reported GDP of 7.4% i...
Poverty, Trade Policy and Migration: The Promise of a Better World
Poverty, Trade Policy and Migration The Promise of a Better World Lionel Stanbrook Consultant, African Development Bank Poverty in Africa is passed inevitably down through the generations, even more assuredly than is private wealth. Most Africans are hopelessly poor, conditi...
Italy: How to Decimate a Country in Less Than 20 Years Italy: How to Decimate a Country in Less Than 20 Years
In 1960, Italy’s GDP was 15% smaller than France’s, and 27% lower than the average of Germany, the Netherlands, Belgium and France’s combined. However, this country enjoyed steady growth until the start of the 1990s as Italian household income caught up with the period’s norm for the other eurozone nations, so much so that around 1995 France and Italy’s GDPs converged and there came to be only a 6% difference between the average of the countries mentioned above. Since then, the Italians have seen a notorious impoverishment with the gap between their incomes and those of the French reaching nearly 20%, worse than during the 1960s. Years of convergence literal...
Gender Matters in Poverty
Gender Matters in Poverty Lionel Stanbrook Consultant, African Development Bank Most Africans suffer poverty and inequality in various different forms, including income and employment, geography, ag...
Lords of Poverty- Neither Oxfam or the USA appears keen to see Rwanda start up a garment business. Here's why...
Lords of Poverty Neither Oxfam or the USA appear keen to see Rwanda start up a garment business. Here's why... Lionel Stanbrook Consultant, African Development Bank What do you think happens to the used clothes we give to clothes banks? Some go to charities for the poor, some to emergency aid, but most go to maint...
What GDP Methodology Has To Do With the Debate about Economic Convergence What GDP Methodology Has To Do With the Debate about Economic Convergence: What GDP Methodology Has To Do With the Debate about Economic Convergence
Have developing countries converged on advanced countries? This was a topic of much discussion in the 1980s and 1990s, and it recently resurfaced (see e.g. here or here). As the debate rages on, one element has gone unquestioned: the use of Gross Domestic Product (GDP) as a measure of growth. Our new GPID Working Paper closes this gap.   In the paper, we show how the assumption that GDP calculation is done in line with economic theory is incorrect – and that the changes made to GDP measurement over the past two decades have a bias towards countries traditionally in ‘the West’. As this has had a substantial impact on the assessment of comparative growth among countries in those two groups, we deem it as a form of kicking away the statistical ladder (following the famous metaphor of Ha-Joon Chang). It redefined the yardstick of development to fit the new strengths of now developed economies.   Examples include the reclassification of financial intermediation services, Research and Development activities (R&D) and owner-occupied dwellings as productive activities. This means finance has been ‘made productive’ (as Brett Christophers puts it), R&D is no longer considered an intermediate input and home ownership is now included in GDP in the form of the imaginary rent that homeowners would have paid to a landlord had they owned their home (with the peculiar effect of making countries with housing bubbles appear to grow more rapidly). A stark example of the effects of these changes can be seen in the output of USA and China. As Figure 1 shows, the reforms of the System of National Accounts (SNA) that determine how GDP is measured, first in 1993 and then 2008, had the effect of increasing the GDP of the US substantially, but not that of China.   Figure 1: Percent Impact of Changing the System of National Accounts (SNA) Methodologies on US and China GDP (differences between revised and non-revised GDP in 1993 and 2008)   The graph above shows the percentage change in GDP due to the SNA reforms in 1993 (blue) and 2008 (orange). Data Source: United Nations, Main Aggregates and Detailed Tables (MADT) database.      We propose a measure called ‘Core GDP’ which excludes imputations and includes only what can be directly measured (following Basu and Foley 2013). Such directly measured industries include agriculture, utilities, manufacturing, retail trade, transportation, and communication. Core GDP correlates much better with employment trends than the now imputation-heavy GDP and is therefore more compatible with the inclusive growth envisioned in the 2030 Agenda. Figure 2 illustrates a substantial difference between how convergence is seen through Core GDP vs. standard GDP.   Figure 2: Average GDP of the ‘Rest’ as % of the West, alternative measures Source: Authors’ calculations based on GDP shares from the United Nations Main Aggregates Database and GDP in $PPP from the World Bank. The West is defined as Western Europe and its former settler colonies in North America and Australasia. Beyond the convergence debates, there are geopolitical and political economy implications related to the measurement of GDP (see e.g. Coyle 2014). The way growth is measured has important implications for the types of sectors that are considered growth-enhancing. Political leaders have incentives to demonstrate to their populace that they can f...
The Looting Machine Accelerates, or a Better Life for Africans?
The Looting Machine Accelerates, or a Better Life for Africans? World Economics There are two very different views on current prospects for Africa.  First there is widespread agreement that...
Reflections on the reality of life in Cote d Ivoire
Reflections on the reality of life in Cote d Ivoire World Economics In late 2016 the McKinsey Global Institute published a report called "Lions on the Move II: Realizing the potential of Africa's economies". The report inc...
Serious Errors on UK Telecoms Data: Prices could have fallen by 90% more than the official price index
The Office of National Statistics (ONS), Britain’s official data agency, has admitted that it has made serious errors in its estimation of the output and productivity of the telecoms sector. A paper co-authored by Richard Heys, deputy chief economist of the ONS which compared approaches to deflating the output of the telecoms industry across countries found a “wider disconnect between the technological performance and economic measurement of the industry in the UK.”1 The authors reported that the deflator used in the UK telecoms sector was biased upwards. The ONS mismeasurement problem arose from the use of inaccurate price indices to deflate the nominal output of the sector in order to gain an estimate of real output. Official data shows no increase i...
Can Big Data Improve Economic Measurement?
The amount of data generated and stored in the digital age is accelerating rapidly, but this is not reflected in official economic statistics. Half a decade ago one estimate put the daily global creation of data at around 2.5 exabytes [2.5×1018 bytes] and it was predicted last year that this would rise to 163 zettabytes of data by 2025 [1.63 x 1022 ]. To meet this demand global per-capita information storage capacity has doubled every 40 months since the 1980s.1   Unfortunately, in the face of this revolution the tortoise-like evolution of the methods used to generate official economic statistics means that measurements of real economic activity are becoming increasingly irrelevant.  The underlying methodology to measure concepts such as Gross Domestic Product (GDP), Consumer Price Inflation (CPI) and other pric...
Trade Data: Use with Care
The international trade statistics used by many commentators are inaccurate and the way trade is measured is no longer fit for purpose. Not only do world exports and imports not balance, but large asymmetries are found in the balance of trade statistics between countries and regions. These errors do not cancel out on aggregation across countries. Asymmetries in trade data occur when the declaration...
Debt to GDP Ratio: Use with Care
One of the most widely used and misused statistics is the ratio of public debt to national income as a measure of a country’s solvency. The debt-to-GDP ratio itself is measured with a country's gross sovereign debt in the numerator and Gross Domestic Product (GDP) in the denominator. A debt-to-GDP ratio of 1.0 (or 100%) means that a country's debt is equal to its gross domestic product. It is used extensively by credit rating agencies, but making sense of any particular ratio is difficult. Controversy over the use of the debt-to-GDP ratio to determ...
The UK Retail Price Index: Broken, Inaccurate and Unfair
Calculating price indexes that are theoretically sound, robust, comprehensive, easy to understand, and which reflect underlying reality is one of the hardest tasks in economics. Most measures of domestic inflation have flaws, but perhaps the least fit for purpose is the Retail Price Index (RPI) used in Britain. In official use since 1956 the RPI is calculated in a different way from the alternative Consumer Price Index (CPI) in use since 1996. RPI estimates of underlying inflation are generally at variance from CPI calculations, with the RPI recording annual prices increase at a rate around 0.9 percent higher than the CPI. Estimates for price changes also vary widely by goods category, especially for clothing. Britain’s National Statistician, John Pullinger, does not rate the RPI, and his negative views have been quoted in the Financial Times. “The RPI is not a good measure of inflation and does not realistically...