Access to high-quality data on economic growth, employment, and other indicators is vital when evaluating the effectiveness of different public policies. Gross Domestic Product growth rates are often used as metrics to compare broader economic performances of different countries. Because of its prevalence in these comparisons, some leaders have an incentive to manipulate GDP growth to make their own economies look more impressive, particularly in countries with authoritarian regimes and a lack of checks and balances to protect data integrity.
A recent working paper from Luis R. Martinez of the University of Chicago uses a novel data set of satellite imagery and finds that yearly GDP growth rates in the most authoritarian regimes are inflated by between 15 and 30 percent. This finding should be incorporated into our understanding of the economic performance of authoritarian countries relative to “freer” countries. With better data, countries that have a higher degree of economic and human freedom likely perform even better than previous comparisons would suggest.
In a previous study in the American Economic Review, the authors developed a statistical framework to use satellite images to estimate growth. To answer the question of whether authoritarian countries were manipulating official GDP statistics, Martinez compared reported GDP figures to satellite images of night time lights. While governments might be able to influence or change reported figures, it would be difficult or impossible for them to similarly affect satellite imagery.
Martinez looks at data from 179 countries between 1992 and 2008 to see if growth in night time lighting corresponds to different amounts of GDP growth in autocracies compared to democracies. In order to sort the countries into various categories, Martinez uses annual scores from the Freedom in the World Index published by Freedom House. Countries are classified as free if their score is below two, “partially free” if their score is between two and four, and “not free” if it is greater than four.
A topline comparison of average growth rates in night lights and GDP reveals that the same amount of growth in night lights translates to a significantly higher amount of GDP growth in more authoritarian countries.
Average Growth in GDP and Nighttime Lights across Regime Types
Source: Luis R. Martinez, “How Much Should We Trust the Dictator’s GDP Estimates?” May 2018.
The author considers whether other underlying mechanisms could be driving these results, but runs tests and provides evidence against explanations such as a changing composition of GDP, urbanization rates, or spatial concentration, among others. He also rules out differences in the capacity to produce reliable official statistics as a potential explanation for the differences between authoritarian countries and others.
Furthermore, manipulation is largely confined to the subcomponents of investment and government expenditure, which rely on government estimates. Other subcomponents that have some form of outside verification show no such evidence, such as private consumption, exports, and imports.
Martinez illustrates how adjusting for this manipulation would update our understanding of the “best-performing” countries when it comes to economic growth. Using raw GDP, only 4 of the 20 countries that had the highest aggregate growth from 1992 to 2008 were classified as “free” by Freedom House, compared to 5 being “partially free” and 11 that were “not free.” After correcting for the data manipulation in authoritarian regimes, 9 of the countries in the top 20 were “free.”
The inflation of GDP growth figures in these countries impedes the ability to make meaningful comparisons of economic performance, and Martinez suggests the manipulation might reduce the pressure for political accountability or improved governance.
Other initiatives such as the Economic Freedom of the World report have consistently found that across all countries higher levels of economic and personal freedom are associated with more robust economic growth. Even with the official GDP numbers, which may not be reliable in some of the authoritarian regimes, overall freer countries perform better. In the most recent iteration, the report finds that countries in the highest quartile of the index had per capita GDP growth of 3.35 percent from 1990 to 2015, compared to only 1.66 percent for countries in the lowest quartile. This divergence would be even more pronounced after making the adjustments for data manipulation that the working paper suggests would be necessary for an accurate comparison.
These findings help shine a light on what seems to be substantial manipulation of economic growth statistics. As Martinez notes, the manipulation of GDP figures is not easily anticipated or corrected. Further research and continued development of data sources such as satellite imagery might make it easier to identify. Accurate comparisons of economic performance could end up making a stronger case for economic and human freedom.
Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.
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