Thought for the day

Dictators Lie About Economic Growth

Many economists believe the lies…

Last updated: 15 April 2024
Exaggeration, misrepresentation and suppression of economic data is endemic, and not new.

Oskar Morgenstern, in his 1950 monograph "On the Accuracy of Economic Observations" made many pithy statements:
"...economic and social statistics are frequently based on deliberate lies"
"In totalitarian countries the suppression of statistics is often carried very far"
"The undeniable existence of an unknown amount of deliberately falsified information presents a unique feature in the social sciences"

Unfortunately little has changed. Morten Jervens classic book "Poor Numbers" published just a decade ago, exposed the gross shortcomings of even World Bank data: "more than half of the rankings of African economies up to 2009 may be pure guesswork".

More recently Luis Martinez of the University of Chicago published a study of the manipulation of GDP statistics in weak and non-democracies (How Much Should We Trust Dictators GDP Estimates?"). The study used data for 184 countries over 20 years based on satellite images of night-time luminosity compared with GDP growth data. The study concluded that authoritarian regimes probably exaggerated economic growth by 30% or more.

Country Governance and GDP Data Quality
Dictators Lie About Economic Growth

More generally, data comparing World Economics Governance and GDP Data Quality Indexes (see above) show a significant correlation. Good Governance usually, but not uniformly, equals good quality data. Bad Governance (usually, but not uniquely, found in countries ruled by Dictators) produces data that should not be relied on for accuracy, and may well have been deliberately falsified.

Rankings of countries GDP size and growth, by august professionals including McKinsey among others, rarely include examination of data quality, or the probability of falsification of data. Investors, Government agencies, Aid professionals, and others who use GDP data should be less gullible.

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