The Shaky Foundations of International Economic Statistics

Lead-researcher

Lukas Linsi

In the FickleFormulas project we claim that economic statistics are not objective and that the choice for particular measures has both political roots and political consequences. In this subproject we analyse key figures in international exchange: foreign direct investment (FDI), trade, global financial flows. The primary goal of this project is to shed light on the institutions and procedures that lead to the adoption of statistical formulas guiding the collection and aggregation of balance of payments statistics. We aim to better understand the politics that underlie them, as well as the degree to which they matter. Commonly used figures stand on much shakier ground than might be apparent at first sight.

How large is Greece’s public debt?

Do we really know how big the US trade deficit with China is? While official figures for 2009 indicate that it was US$ 189bn, a research paper from the Dallas Fed found that it amounted to less than US$ 130bn if the value added in each country were accounted for. How large is Greece’s public debt? While the official figure stood at US$ 318bn in February 2015, billionaire investor Paul Kazarian claimed it was less than a tenth of this figure if the accounting rules advocated by the International Public Sector Accounting Standards were applied instead of the framework used by the European Commission and the International Monetary Fund (IMF).

Why these differences?

Different ways of measuring cross-border flows of goods and capital can generate huge differences in our estimates. Our objective is not to adjudicate which measurement is the ‘right’ one in technical terms – an elusive quest – but instead to systematically investigate the political dynamics that determine which measures (out of a number of plausible alternatives) end up being adopted as the most commonly used.

The IMF Balance of Payments Manual

The project will zero in on the most authoritative international rulebook in payment statistics: the IMF’s Balance of Payments Manuals (BPM). The rules outlined in the BPM are generally regarded as the benchmark defining international ‘best practice’ for the collection of international economic statistics and are directly implemented by a large number of national statistical agencies as well as international financial institutions.

The BPM is a hugely powerful document – and yet, we know almost nothing about it

The first part of the research will build a better understanding of the role and function of the IMF’s BPM in the global economy by examining their political history and institutional framework. Who writes the BPM? Why has this rulebook been comprehensively revised five times since its inception in 1948? What are the institutional mechanisms that determine which rule ends up being adopted? To what extent are these processes influenced by political power dynamics and social norms?

Do these differences matter?

The second part of the subproject estimates the degree to which the adoption of alternative statistical formulas can matter in quantitative terms. It will compare the differences in reported in- and outflows of capital and goods between countries that adopt the rules from the BPM and others who use alternative formulas in a systematic manner. This exercise will make it possible to better estimate the degree to which changes in statistical formulas can influence key estimates in international economic affairs. The goal is to achieve a better understanding of the uncertainty surrounding official estimates of international economic statistics that derives from the adoption of specific statistical formulas over plausible alternatives.