Tag Archives: Ghana

Collecting Economic Data

The US Capitol, Washington, DC

The US Capitol, Washington, DC

It seems that House’s war on (political) science is not yet over. House Resolution 1638, The Census Reform Act of 2013, was introduced yesterday. If passed, the legislation would prohibit the U.S. Census from collecting any information beyond the Constitutionally-mandated decennial population count. Specifically, it would end collection of the U.S. agricultural census, the government census, the mid-decade census, and the American Community Survey. The United States, in other words, would lack basic economic data, such as the unemployment rate and the gross domestic product measures which are calculated using data collected by the Census Bureau.

There are many countries which lack regular reporting of basic economic data. In many African countries, for example, annual GDP reports are calculated using base year estimates and an annual multiplier adjustment calculated from a few key indicators. The problem is that the further we move from the base year, the mess accurate the economic measures become. Indeed, the problem was so pronounced in Nigeria that a 2012 revision added nearly $100 billion to the national economy overnight, increasing the size of the economy by 40%. The revision was not based on any real change in the country’s economic output—it was certainly not a function of a dramatic level of economic growth. Rather, it was simply a recalculation of the figure based on more up-to-date (and arguably more accurate) data. In 2010, Ghana similarly experienced a 60 percent increase in its GDP.

So does all this matter? Should we worry about the accuracy of GDP figures in the United States? Or unemployment figures, which would be similarly affected by the proposal? Leave a comment below and let us know what you think.

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Measuring Economic Activity and Development in Africa

Lagos, Nigeria

Lagos, Nigeria

According to a report by Reuters, Nigeria’s gross domestic product will grow by 40 percent in the second quarter of 2012. If correct, Nigeria’s GDP would increase from $273 billion to $370 billion, and Nigeria would become Africa’s second largest economy in Africa. Growth forecasts suggest that Nigeria would surpass South Africa to become Africa’s largest economy within a few years.

The move has significant implications for Nigeria and the rest of the developing world. Symbolically, Nigeria’s newfound economic prowess could afford the country greater leadership and influence on the continent, particularly within West Africa.

Nigeria’s larger economy would also have important policy effects for international institutions. By increasing its GDP, Nigeria’s debt ratio (the size of the country’s national debt as a proportion of the total size of its economy) will nearly be cut in half. At the same time, the improved economic status of the country could affect its ability to secure concessionary loans. When Ghana’s GDP was increased by more than 60 percent in 2010, its debt-to-GDP ratio fell from 40% to 24% and the World Bank reclassified it from a low income to a lower-middle income country.

So how did Nigeria and Ghana grow their economies so dramatically? In truth, they didn’t. Gross domestic product is the total value of goods and services produced win a country in a given year. But in most countries in most years, economists don’t actually go out and add everything up. Instead, they start with a year in which a fairly accurate survey was conducted and adjust it annually based on other variables like population growth. In both Ghana and Nigeria, the dramatic increase in GDP was not the result of sudden and dramatic economic growth. Rather, in both cases, the upward shift in GDP was the result of how the number was calculated and which base year was used.

This methodology raises several important questions.

First, how accurate is the baseline year? If the baseline year is incorrect, then all subsequent calculations based on that initial estimate also be inaccurate. The exclusion of the informal sector, which can include everything from sales by unlicensed street vendors to prostitution to the sale and trafficking of illicit drugs, often leads GDP to be underestimated. A 2010 World Bank report estimated the size of the informal economy in the United States as 8.8 percent of the formal economy. The median figure for developing countries was 41 percent. In the countries with the largest informal economies (such as Azerbaijan, Bolivia, Georgia, and Panama), it exceeded 60 percent.

Second, how old is the baseline year? When Ghana’s GDP increased in 2010, it was because Ghana shifted its baseline year from 1993 to 2006. Similarly, Nigeria’s baseline year shift from 1990 to 2008 will likely account for a significant portion of the increase in its GDP. Think for a moment about the importance of the baseline year. In the early 1990s, the cell phones which are no so ubiquitous across Africa will still in their infancy, widely unavailable on the continent. This one example illustrates how dramatically the structure of an economy (and a society) can shift in a relatively short period of time.

This means that GDP figures for developing countries are best thought of as general estimates falling within a wide margin of error rather than concrete numbers that reflect real, on the ground economic activity. It teaches us that we should be critical consumers of data.

Those interested in learning more about this questions would be well advised to seek out Morten Jerven’s new book, Poor Numbers: Facts, Assumptions and Controversy in African Development Statistics, forthcoming from Cornell University Press.

What do you think? Should we continue to use GDP as a proxy measure for development? If so, how can we acknowledge the limits of that figure while making meaningful decisions? If not, what do we use instead? Leave a comment below and let us know what you think.

Five Stories You Might Have Missed

It’s been another busy week for President Barack Obama, who started the week laying the foundation for a new arms control agreement with Russian President Dmitry Medvedev, then moved on to discuss a range of issues including food security and climate change at the G8 summit in Italy, before concluding the week with a visit to Ghana, where he delivered a speech calling for more effective and accountable leadership in Africa.

In other news from the previous week:

1. In a surprising move, Russian President Dmitry Medvedev announced on Friday that Russia was still interested in securing membership in the World Trade Organization. In doing so, President Medvedev reversed Prime Minister Vladimir Putin’s June announcement that Russia was ending its bid to secure WTO membership, moving forward instead with a customs union incorporating several of the former Soviet republics. While Medvedev’s spokesperson sought to minimize the differences between Medvedev and Putin’s approaches the policy reversal nevertheless represents the most dramatic policy clash between Russia’s two top political leaders. The uncertainty surrounding Russia’s position on WTO membership further complicates ongoing talks between Russia and its trade partners.

2. A series of denial-of-service attacks against the United States and South Korea on Wednesday were likely the result of a North Korean cyber attack. In a denial-of-service attack, thousands of simultaneous electronic information requests are made, causing computer servers to crash. Wednesday’s attacks were directed against South Korean and U.S. financial sector and government computers, including Department of Defense and FBI networks. The attacks followed a series of increasingly aggressive missile test launches by North Korea, including several launched over the July 4th weekend, and highlighted the vulnerability of U.S. computer networks to relatively simple cyber attacks. Many analysts believe this sort of denial-of-service attack—in an effort to inhibit communications—would precede a North Korean military attacks against the South.

3. Israel’s National Security Advisor, Uzi Arad, considered by many to be Prime Minister Benjamin Netanyahu’s closed political advisor, announced that Israel would not return the Golan Heights to Syria as part of any peace deal. The two countries are currently engaged in indirect talks aimed at reaching a “comprehensive peace.” But the status of the Golan Heights remains disputed, as both countries seek control of the region, which is of strategic importance, as well as being a major source of water and a popular tourist destination in the water-scarce region. Israel seized the Golan Heights in 1967, after the Syrian army used the strategic position to shell Israeli positions in the Hula Valley below. The status of the Golan Heights, along with the status of Israeli settlements in the West Bank, remains the major stumbling blocks for a comprehensive peace between Israel and its neighbors.

4. Talks intended to resolve the political crisis in Honduras began in Costa Rica on Thursday. The crisis began two weeks ago, when President Manuel Zelaya was removed from office and put on a military transport out of the country. Roberto Micheletti has been named interim president, but his government is not recognized by the international community. The Organization of American States has taken the lead on addressing the standoff, sponsoring talks to peacefully resolve the standoff. But so far, both sides are unwilling to compromise on the central question: who should rule in Honduras?

5. The United States and the European Union appear to be on a collision course with respect to new financial regulations intended to prevent another global financial crisis like the one that ripped through markets late last year. The U.S. Congress is currently considering a new regulatory system that would impose stricter regulation on derivatives, including bans on some of the riskiest financial instruments. But many are concerned that stricter regulations in the United States would encourage regulatory arbitrage, where financial companies would simply relocate to jurisdictions with weaker regulatory systems.

Five Stories You Might Have Missed

The conflict between Hamas and Israel in Gaza continued this week, with Israeli air strikes and rocket attacks by Hamas through much of the week culminating with an Israeli ground attack over the weekend.  So far, more than 400 Palestinians and 4 Israelis have been killed in the fighting.  A Libyan-sponsored United Nations resolution calling for an immediate ceasefire was blocked by the United States on Saturday.  Meanwhile, some international observers warned that the use of military force will not achieve a stable solution to the Gaza conflict

In other news from the previous week:

1.  The Chinese government has moved to isolate dissidents who support Charter 08.  The Charter, often referred to as the most significant push for opening the one-party state in China since the Tiananmen Square protests, has been signed by 7,000 Chinese and foreign intellectuals.  The Charter warns of “the possibility of a violent conflict of disastrous proportions” if the Chinese Communist Party does not move towards greater democratization and political openness. A number of signatories to the document have been detained by police, and the government has cautioned the media against carrying interviews with the Charter’s signatories.

2.  Tensions between Russia and Ukraine are growing as both sides seek to mobilize support for their position in Europe.  Russia cut off natural gas flows to Ukraine last week, accusing the Ukrainian government stealing gas from the pipeline; the Ukrainian government denies the charges.  The standoff is a major concern for several members of the European Union, which secures up to 20 percent of its natural gas demands through the disputed pipeline. 

3.  Cuba celebrated the 50th anniversary of the Cuban revolution on January 1.  The revolution led to the overthrow of the dictatorial government of Fulgencio Batista and the establishment of a communist state under the leadership of Fidel Castro.  The resignation of Fidel Castro earlier this year, the economic slowdown on the island, and the devastation brought by two hurricanes have left the country in crisis.  As a result, celebrations of the revolution were scaled back.  The future of U.S.-Cuban relations is likely to be a significant policy question for the incoming Obama administration.

4.  John Atta Mills, the leader of the opposition National Democratic Congress, was declared the winner of Ghana’s presidential runoff elections on Sunday.  He defeated Nana Akufo-Addo of the ruling New Patriotic Party to win the presidency in elections characterized as free and fair.  Ghana has long been viewed as the model for political and economic reform in Africa, and the peaceful political transition in Ghana is viewed as a model for other struggling countries.

5.  On Friday, the government of Sri Lanka announced it had seized control of the northern town of Killinochchi in the northern part of the country.  Sri Lanka has effectively been divided in half for years, with the northern part of the country under the de facto control of the Liberation Tigers of Tamil Eelam (the Tamil Tigers) and the southern part of the country under the control of the Sri Lankan government.  The government’s victory in the Tiger stronghold of Killinochchi is widely seen as a dramatic blow to the Tamil Tiers.

Five Stories You Might Have Missed

It’s been a bad week for economic news.  Both the United States and Canada posted record job losses, home foreclosures continue to rise, and Congress is at an impasse on how to (or if to) bail out the U.S. auto industry.   Here’s five stories you might have missed amid all the bad economic news coming out this week.

1. Massive riots rocked the Greek capital of Athens on Sunday, as young Greeks took to the streets to protest the killing of teenager by police.  The center-right Greek government has been under pressure amid the spread of the financial crisis to Greece.  It currently holds a narrow two-seat majority in the country’s parliament, but the protests—the largest in Greece since World War II—may force some concessions on the part of the government.

2.  Amid news that the global economic crisis is taking a severe toll in Asia, both China and India are seeking to limit the spread of the crisis by instituting Keynesian-style economic stimulus packages.  India has announced a $4 billion package while China is seeking to boost domestic consumption.  Both plans have been criticized for being too small in the face of the current crisis.

3.  The Israeli closure of the Gaza Strip continues.  According to Palestinian officials, the impact of the closure is so severe that the Gaza’s financial institutions have run out of money.  The lack of cash has affected nearly all aspects of daily life in Gaza, as families lack the cash to purchase basic supplies and relief agencies have been forced to suspend their work.  Israel maintains the closure is necessary to prevent the Hamas government in Gaza from attacking Israeli settlements near Gaza. 

4.  Elections are being held in Ghana, one of Africa’s most longstanding and stable democracies.  Sunday’s presidential election is projected to be very close, potentially triggering a run-off election later this month.  Many are looking to Ghana to illustrate the potential of peaceful political transitions to countries like Kenya, Zimbabwe, and Nigeria, which experienced violence surrounding recent elections.

5.  Regional economists are raising concerns that Latin American governments may be crowded out of international credit markets due to barrowing by the United States and other developed countries.  The Latin American Shadow Financial Regulatory Committee, comprised of former finance ministers and central bank governors from the region, are warning that the loss of access to credit could have severe consequences in the region, potentially forcing countries to undertake painful fiscal adjustments or detrimental import restrictions and capital controls.