gdp, development-economicsA country’s total transaction values are measured using the GDP and GNP, and these are often used as proxies of economic growth. These surveys and analyses are typically done for a country by its administrative economics statisticians. Is there any way for a country’s data-suppliers, such as its Central Bank, to provide false information to cheat and show wrong information for analysis?
Yes, certainly, although the Central Bank may not be the source of error (the tax office, statistical services and so on are also involved). The eroneous data can come about through accident as much as design.
For instance, as The Economist regularly delights in reporting:
Yet they ignore the biggest imbalance of all: the current-account surplus that planet Earth appears to run with extraterrestrials. In theory, countries’ current-account balances should all sum to zero because one country’s export is another’s import. However, if you add up all countries’ reported current-account transactions (exports minus imports of goods and services, net investment income, workers’ remittances and other transfers), the world exported \$331 billion more than it imported in 2010, according to the IMF’s World Economic Outlook. The fund forecasts that the global current-account surplus will rise to almost \$700 billion by 2014.
The error is usually a result of misreporting, and not all businesses are easy to monitor:
An IMF study in 2009, by Marco Terrones and Thomas Helbling, concluded that the biggest cause of the switch from a global current-account deficit to a surplus was mismeasurement of services. International trade in financial and legal services, insurance and consultancy is tricky to measure, and exporters are easier to identify than importers. For instance, law firms involved in cross-border deals are usually quite large, whereas most clients’ spending on their services is relatively small (though it may not seem that way to the clients). Exporters are thus more likely than importers to exceed the threshold for inclusion in the surveys used to track trade in services.
Data on GDP is derived from tax filings, and then cross-matched against import/export data. Not all of this is accurately managed. And that's before you get to politics. Consider the following on Argentina:
A presidential election looms in October [2011] and inflation, and the government’s denial of it, is perhaps the biggest threat to the prospect of President Cristina Fernández winning a second term. That may be why Guillermo Moreno, the thuggish commerce secretary, is moving to stamp out the unofficial, but widely trusted, price indices. To do so he has dusted off a decree, penalising misleading advertising, approved by a military dictatorship in 1983. In February he sent letters to 12 economists and consultants ordering them to reveal their methodology, on the grounds that erroneous figures could mislead consumers.
Some of Mr Moreno’s targets refused; the rest were analysed by INDEC, which predictably found their methods flawed. Seven of them were then ordered to pay the maximum fine of $123,000 (all have appealed). The financial threat is especially serious for Graciela Bevacqua, who lost her job as head of INDEC in 2007 for refusing to tamper with the price index. She now publishes her own inflation estimate with the help of a business partner and former students.
From the April 2011 Economist.
All of this is only about monitoring the formal economy. The informal, or parallel, economy can only be estimated or derived. [See: How do economists quantify Black Market operations?] Solid independent analysis is required. All the more reason to ensure that all of the tax, central banks and statistical services are independent agencies.
Further to @Turukawa above, who handled issues with measuring output, real GDP requires a measure of real prices.
In practice this is done using a consumer price index, but which goods to include and their weighting varies from index to index and is generally chosen by the relevant statistics office. For example, in the UK there are two widely recognised indices: The official Consumer Price Index (CPI) and the Retail Prices Index. Both of which have different baskets of goods or calculation methods and both of which have different values. These refer to the typical inflation faced by the typical consumer.
An additional problem is that price-level inflation is not constant across goods and industries; producers face different types of inflation to consumers, and a set of different issues such as how production of inventory should be valued.
Beyond these problems with deriving a measure for real GDP, to make country GDPs comparable (whether nominal or real) some measure of comparing local values is necessary. In practice this is done with exchange rates to a benchmark currency, typically the USD. However, exchange rates factor in certain elements that ought not to be included in a GDP, such as risk-profiles of the currency markets, transitory liquidity preferences as well as biases of LIBOR etc.
All these problems in deriving a comparable GDP are open to errors and manipulation in the longrun. However, in practice, with the exception of what inflation rates to use for various goods, a government has limited scope for changing these.
GDP is free of much of the government manipulation that often occurs for publishing budget deficits (e.g. what is counted - see Eurozone, UK and other countries for examples of the classification certain forms of debt as outside the balance budget requirements) because GDP is an aggregate measure.
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