Check The Lights For GDP Fakers

Statistics emerging from dictatorships and autocratic nations are not necessarily trustworthy.

Anew study provides evidence that dictatorships inflate the measure of GDP expansion. The study says countries like China and Russia may have cheated for years to exaggerate how well their economies are doing.

There are many reasons why economic statistics are questioned, and the political regime of the country is apparently one of them. A working paper by Luis Martinez, professor of economics at the University of Chicago, titled, “How Much Should We Trust the Dictators’ GDP Estimates?” shows that dictatorships tend to inflate economic growth data by between 1.15% and 1.3%.

“What the paper documents is that the same amount of growth in nighttime lights systematically translates into larger amounts of [reported] GDP growth in more authoritarian regimes,” Martinez tells Global Finance. “This comparison is meaningful, as both night lights and GDP are measures of economic activity, with the key difference being that the former are recorded by satellites from outer space and are immune to manipulation, while the latter is self-reported by national governments and, as a result, prone to exaggeration.”

Martinez says that in the future, there is likely to be more work looking at specific countries in which there are strong hints of exaggeration of economic growth, digging deeper into the institutional context and the underlying incentives and mechanisms.

China, whose remarkable declared level of economic expansion has raised eyebrows, is considered by the study to be one of the countries with the highest elasticity of GDP to night lights.

“China is the only country that I know of that has had a substantial amount of academic research devoted to the credibility of its official statistics,” says Martinez. “My paper adds to this debate and provides evidence that points to Chinese growth being exaggerated. To begin with, China is classified as highly authoritarian by all the sources I consult. More specifically, it is classified as a ‘civilian dictatorship,’ which I find to be the regime type that inflates GDP growth the most.”