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Trade Data: Use with Care
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Brian Sturgess, World Economics, December 2017
Politicians focus on trade deficits and surpluses between countries and threaten trade wars and retaliatory actions, but the conventional international trade statistics used by many commentators are inaccurate. World exports and imports do not balance, but asymmetries are also found in the balance of trade statistics between countries and regions and these discrepancies can be very large in emerging markets. The ‘Rotterdam effect’ distorts the measurement of trade flows and balances where goods are recorded as imports into one country, which subsequently re-exports them to third countries without taking note of the country of origin. The Apple ‘Made in China’ question, or the existence of global value chains where much trade is in intermediate inputs, indicates that conventional trade statistics involve double-counting and misallocated trade balances.
The Power of Price Indexes
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Raymond Cheung and Mike Waterson
World Economics, March 2011
Price indexes are the most important of all economic indicators simply because they are the tool used to calculate the real size, speed and direction of all forms of economic activity. Price indexes are compiled almost everywhere, but with major differences in method and sampling procedures. Some methods and procedures have led to significant errors. Even in the case of a country as advanced as Japan, critics have calculated that imperfections in method have led to a rate of price inflation around 1.8% per year above the level a true cost of living index would have shown. Further research undertaken by World Economics has attempted to make estimates for changes in discounting and promotional practices at the retail level. The conclusion is that, in reality, the overestimation of price changes by the Japanese CPI in recent years may well have been in excess of 2% per annum, and could have been significantly more. Different CPI assumptions change economic growth estimates dramatically. Using World Economics estimates, adding in a minimum figure for marketing and retail changes seen in recent years suggests, contrary to official data, that Japanese consumption growth exceeded that of the US.

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