Emerging Market Economic Data Cannot be Trusted
- The failure by many national statistics offices to regularly update the base year on which GDP growth is measured casts doubt on the accuracy of much published data.
- The need to account for changes in the dynamic structure of economies necessitates regular rebasing, ideally every 5 years, but these exercises are costly and are carried out irregularly by most countries.
- A survey of 187 countries using IMF data found that the average period since the base year was updated was 11 years, but 29% of the non-OECD countries had not rebased for over 16 years.
- Rebasing after a long period of time can have a dramatic impact on GDP revisions, but the infrequency of the practice means that most published emerging market economic data and cross-country comparisons are largely meaningless.
accuracy of much international GDP and economic growth data, particularly for
emerging and frontier markets, is poor. This makes many cross-country
comparisons of GDP, income per capita and growth rates made with the more
developed countries of dubious value. A serious problem undermining the quality
of published data is the failure of national statistical offices to update regularly
the base year, a procedure known as rebasing. Rebasing
involves replacing the old base year used for compiling the estimates of goods
and services produced and consumed to estimate GDP with a new base year. The
new base year becomes the most recent period from which the structure and level
of output and relative prices income across all measured economic activities has
been surveyed and it is used to determine the appropriate weights of sectors
and sub-sectors in GDP calculations. Later GDP figures depend crucially on the comparison
of base year information with subsequent estimates of transactions within monitored
revisions in GDP frequently arise as a result of updating of base years and
these revisions occur often in tandem with the application of a change in
methodology, the application of the latest recommendations from the international
System of National Accounts (SNA) standards on industry classification
and the application of improved surveys of industries or activities. Regular
rebasing is necessary in order to ensure that new industries such as mobile
telecommunications and the internet are included in the latest GDP estimates. In
many developing countries the rapid penetration of mobile phones has occurred
after the most recent base year used.
is also necessary to rebase in order to check that the weights assigned to
previously measured sectors – services, agriculture, industry – still reflect
their continuing importance in total value added. In Ghana’s recent rebasing
from 1993 to 2006, the application of SNA 1993 allowed for a broader coverage
of economic activities not accounted for in prior GDP estimates leading to a
rise in measured GDP and to a shift in the relative significance of sectors.
Services replaced agriculture as the largest sector accounting for 51.1% of GDP
in 2010 in the new revised data compared to 36.1% using the old base year.
additional information generated by rebasing also often leads to better
measures of unmonitored traditional activities. In many emerging markets the
relative size of the unmeasured informal sector in urban areas and non-cash
agricultural activities can be estimated by the application of new
methodologies when rebasing is carried out. Despite the benefits in
the improved accuracy of economic data frequent rebasing carries a trade-off in
cost. Rebasing necessitates the application of considerable resources to
generate data from new and expanded surveys in and before the new base year. Jerven and Duncan (2012) note that despite a common belief
within Ghana that GDP was seriously underestimated using 1993 as a base year
the country’s president explained ‘that the Ghana Statistical Office lacked the
resources to calculate these statistics.’
best practice by the United Nations Statistics Division is to rebase every 5
years, but an analysis of 187 countries found that most countries rebase relatively
the number of years between 2012 and the most recent base year the average
lapse across all these countries was 10.6 years, with a median base of 2002, twice
the recommended period. The analysis also confirms that as expected given the
lack of resources and staff training found in many national statistics offices,
rebasing and consequent data accuracy is related to the level of economic
development. The mean period since the last rebasing was 7.0 years for the 34 richer
OECD countries included in the global group compared to an average of 11.4
years for all other countries. The standard deviation across the OECD group at
3.4 years was nearly half the level for the other group and many of these countries
were using base with long and varying vintages such as Albania (1996), Barbados
(1974), Bolivia (1990), Brazil (1995), Chad (1995), Nigeria (1990), Indonesia
(2000), Pakistan (1999) and Thailand (1988) to give a few examples across
continents. The base year dates as published by the IMF are shown in the Table
broken down by broad geographical region: Europe, Asia-Pacific, Africa and the
Download the fill list of Country/Base Year data in Excel.
Although the data shows that some OECD
countries have also been tardy in rebasing, as the Figure demonstrates,
generally it is the non-OECD group of countries where most problems are encountered
with the accuracy of GDP data. For example, 54% of the non-OECD countries had
not rebased for over 11 plus years, 29% had not rebased for over 16 plus years and
a sizeable 10% had not done so for more than 20 years.
failure to rebase frequently means that the published level and sector
distribution of GDP drifts further away from reality over time as relative
prices and industries change making the information increasingly inaccurate and
irrelevant. This drift is particularly serious in the emerging markets that
have grown most rapidly in the last decade. Recent experience shows that the impact
of updating a base year after a long time lag can be significant. In Ghana,
updating the base year led to an upward revision of the country’s estimated GDP
by more than 60%.
At present Nigeria is undergoing an extensive, albeit delayed, exercise to
update its base year from 1993 to 2008 and the figures when released are
expected to raise estimates of GDP by 50% making it Africa’s largest
economy overtaking South Africa. Whereas these revisions do not make citizens
better off overnight they cast considerable doubt on any conclusions drawn
about the level and speed of economic development in Africa.
to Jerven and Duncan (2012):
ranking of African economies by GDP levels cannot be taken at face value.
Current income tables reflect an uneven application of statistical methods,
data availability, and country level. The most recent country level estimates
reported in international databases are, in large part, automatic data
permutations, and the differences are as likely to reflect statistical
methodology as economic reality.”
Economics analysis of 187 countries shows that the problem of infrequent
rebasing extends far beyond Africa and doubts about the accuracy of published
GDP data can be applied to most emerging markets. This has serious implications
for development policy, for the allocation of foreign aid, for the asset
allocation strategies of investing institutions and for the credit ratings of
sovereign debt to give just a few examples. Until more resources are allocated
to better collection of national income data all of these activities, which
rely on accurate GDP data, rest on shaky foundations.
Jerven, M. (2011), Counting the Bottom
Billion, World Economics,
Jerven, M. and Duncan, M.E. (2012) Revising GDP estimates in Sub-Saharan Africa:
Lessons from Ghana, The African
Statistical Journal, 15, August, pp13-22.
Sturgess, B.T. (2013), Nigerian GDP to rise
by 50 percent on improved measurement, World
Economics, April, http://www.worldeconomics.com/Papers/NigerianGDP_db19af62-8a3d-42f9-b8e6-721ebdbd4993.paper