Ratings of GDP Data Quality in the Asia-Pacific Region
Why GDP Data are Important
GDP data are, without question, of crucial importance. They are used by Governments, banks, companies, and investors the world over to make life changing decisions. Yet relatively few countries achieve the standards set internationally by the United Nations, or keep the data up to date. Even when data meets UN standards, most measures of GDP are flawed conceptually, in the way they are collected and presented, to an extent that few realise.
This paper reviews GDP data in the Asia Pacific region in relation to basic standards, including base years used (basing data on a 25 year old snapshot of economic activity isn’t likely to produce accurate data); which UN System of National Accounts (SNA) they use (some still use way out-of-date 1993 standards ) ; how much informal economic activity may remain uncounted ( in many countries a great deal of economic activity remains uncounted ); and various other indicators of potential inaccuracy. The resulting Data Quality Ratings ( DQR ) enable an understanding of which countries data are reasonably useful, through to which countries produce data that are potentially highly misleading.
The quality of economic data in the Asia-Pacific region is particularly important, since after adjusting for price and data quality differences it probably now accounts for over half global output, and contains three out of four of the biggest economies . As well as half the world’s population and two thirds of its largest cities. In very general terms, Asia is now quite simply about half the entire world in economic terms.
Measuring GDP Data Quality
The GDP Data Quality Ratings currently cover six factors to determine data quality. Each factor is evaluated to provide country scores which are then normalised using the standard deviation of the data for each factor and combined into the DQR score using a weighted aggregate to reflect the importance of each of the individual factors.
Read a full description of how we measure GDP quality
The six factors used to judge data quality are:
- Base Year used to calculate the GDP data (years out of date)
- Standard of National Accounts (SNA) applied
- Estimated Size of the Informal Economy
- A Proxy for Resources Devoted to Measuring Economic Activity
- A Proxy measure for likely Government Interference in Economic Data production
- A Proxy variable for Regulatory Hurdles faced by enterprises generally
It should be noted that there is not infrequent variation between what the World Bank and IMF list as the most recent Base Year and/or most recent SNA in use, and what countries themselves claim to be using. This is sometimes caused by often unavoidable time lags in the International organisations being informed of changes that have taken place locally and sometimes simple error is involved. Whatever the reasons, World Economics takes some trouble to find out what is the on-the-ground reality behind the figures. If we also fail to reflect the latest changes occasionally, we apologise in advance, but hope the data in this report is as correct and timely as is possible to achieve, at the time of writing.
Comments on Asia-Pacific Data
World Economics produces GDP Data Quality Ratings for 154 countries (of which 27 are in Asia). In addition to a numerical DQR score which ranks each country in relation to other nations, the quality of data is also assigned a qualitative assessment: A to D – ranging from acceptable to virtually unusable.
The level of GDP data quality in the Asia-Pacific region is generally poorer than the world average with a median DQR score of 50.5 compared to 68.8. Six countries are assessed as having an A rating in the Asia-Pacific region, or 22.2% of the total compared to 24.7% of countries globally. Seven countries are B rated, or 25.9%, very close to the global proportion of 26.0%; but 10 countries are rated category C, or 37% of the countries in the region, a relatively high proportion compared to 24.7% globally. However only four, or 14.8% of Asian-Pacific nations were ranked in the worst quality D category, compared with 24.7% across the world.
The region is dominated by three very large economies: China, India and Japan, respectively the first, third and fourth largest economies in the world. Of these only Japan has an A rating for the quality of its GDP data. Despite this high data ranking serious flaws were revealed in January 2019 (going back 15 years) in Japanese Labour Survey data used to calculate unemployment benefits but also used in GDP estimates. So even the highest quality GDP data can suffer from errors outside the 6 factors used to estimate the A grade.
The quality of economic data in China, the world’s largest economy, is ranked in the B category, mainly because it uses the latest standard of national accounting, SNA 2008, and its base year is only three years out of date, but there are many reservations about its reliability. Some economists have argued that Chinese price indexes used to deflate nominal GDP artificially raise real GDP and also that local governments manipulate regional output data to flatter economic performance.
Similarly, the quality of GDP data in India is ranked as B since although the country uses the latest SNA 2008, its base year is 8 years out of date and it has a very large unmonitored formal economy. Given the problems of estimating GDP with existing data it is not surprising to find charges of significant overestimation of GDP growth levelled at the government by a former chief economic advisor earlier this year.
However given the seriously out of date base year, we feel that despite the accusations of "technical” overestimation it is very likely that India’s data also underestimates the structural changes that have taken place, and so consequently underestimates growth in ways not taken into consideration by critics. Furthermore our Sales Managers Index also indicates continuing rapid economic growth.
On balance we believe Indian GDP continues to grow at a rate in excess of 5%. However the data is B grade and obviously far from perfect. So buyer beware!
View the complete Data Quality Ratings for the Asia Pacific Region
The Data Rankings for all 154 countries can be found in the Global DQR Report