Tag Archives: gross national product

Maintaining Debt Targets and GDP levels in the EU

Amsterdam's famous Red Light District.

Amsterdam’s famous Red Light District.

According to a story published by the New York Times yesterday, the government of Spain is attempting to estimate the contribution of sex work to the Spanish economy. The European Union imposes strict debt targets on its member states, effectively limiting the size of the national debt as a portion of the total size of the economy. So one way to reduce the size of a country’s debt burden—at least on paper—is to increase the size of the economy against which it is measured.

As the New York Times story observes, “accounting for prostitutes and heroin can add billions to an economy. And as some countries try to dig out of the euro zone’s nearly five-year growth slump, every little bit helps.” In the case of Spain, it is estimated that prostitution generates approximately 20 billion euros ($27 billion) per year.

Other countries are similarly attempting to measure informal economic activity, including prostitution and the trade in illicit drugs, as part of a broader effort by the EuroStat to more accurately capture all economic activity in Europe. Most observers believe that the changes, combined with a new accounting measure of research and development investments, could increase the size of the economies of Finland and Sweden by as much as 5 percent. The economies of other countries could see increases of between 2 and 4 percent.

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Can I Have a Big Mac, Fries, and a Coke With That?

Assessing political stability and comparing levels of economic development has always been a tricky business.   Take, for example, the use of gross domestic product as a proxy for levels of economic prosperity.  Everyone uses it—World Bank programs cite it, academics use it, and so on.  But no one ever really seems truly happy with it.  And with good reason.  As a measure of economic development, GDP leaves a lot out.  But if we want to look at levels of economic development, we really don’t have any good alternatives…or do we?

Last week NPR carried a story from the Africa correspondent for the Economist, Jonathan Ledgard.  (You can listen to the segment on the Day to Day website).  Ledgard argues that Coca Cola sales are a key indicator of political and economic stability across the African continent.  Why?  Well, Coke is widely available, relatively cheap, and almost always produced locally.  When Coke runs out, as in the case of Somalia, Eritrea, or Kenya, a crisis is usually brewing.  According to Legdard, Coke is

a pan-African product. It’s found in almost every African country… Even in the sort-of sub-villages, some guy on a bicycle will be taking five or six cases of Coke to a shack in the Congolese jungle or in the backwaters of Ethiopia. And it’s kind of amazing that that product can penetrate that far… A drop in the sales of Coke will be reflected in political, cultural, ethnic disturbances.

So it looks like we can add the Coca Cola index of political stability to the Economist’s Big Mac Index, which measures purchasing power parity, and Thomas Friedman’s Golden Arches theory—a restatement of Kant’s liberal peace—which asserts that no two countries with McDonald’s have ever gone to war with one another…almost true, except for the conflict in the former Yugoslavia and the recent war between Israel and Lebanon.

So does globalization mean peace and prosperity?  I’m not sure, but at least you can have  a Big Mac and a Coke with that.