Briefing | GDP revisions

Rewriting history

The nation’s income is a constantly moving target

BY HOW much did Britain’s economy grow in 1959? It would seem to be a question that ought to have been settled long ago. It hasn’t been. Samuel Williamson of the University of Illinois finds that in the British government’s annual “Blue Book” reports on GDP in the half-century or so since this uncelebrated year, there have been 18 different answers. The Blue Book published in 1960 said 2.7%; that of 2012 said 4.7%. British GDP, it seems, is under almost constant revision.

Britain is scarcely alone in rewriting recent history. Recent research by the OECD, a rich-country think-tank, found that for G7 countries the average absolute revision to GDP growth figures three years after preliminary estimates was at least as large as those seen in Britain. Those revisions tend always to increase the initial estimate—except in America, the only economy where initial estimates are usually too optimistic. Beyond three years, though, there is evidence that revisions in Britain are larger than its rich-country peers.

In poor countries, revisions can be huge. Nigeria’s GDP was revised up by 89% in 2014. Later that year, Kenya’s GDP was revised up by 25%. Ghana’s GDP had been upgraded by 60% in 2010.

Some of these bigger changes to GDP estimates are outcomes of “rebasing”. GDP is measured by reference to a survey of the economy in a “base” year in which statisticians look at a sample of firms across business lines to gauge how quickly production is growing. The weight given to each industry depends on its importance to the economy in that year. As the economy changes over time, with some sectors growing faster than others, this snapshot becomes less accurate. Before its revisions in 2014, the base year for Nigeria’s GDP had been 1990, providing a hopelessly outdated picture of the economy. The revised figures, based on 2010, gave due weight to industries, such as mobile telephony and filmmaking, that had sprung up in the meantime. In Kenya and Ghana, a delay in updating the base year meant their GDP figures had become similarly inaccurate.

To avoid periodic rebasing rich countries have switched to “chain-weighting”, a system by which the base year is updated each year. Even so, new data or changes to the way GDP is calculated result in frequent revisions. There are a number of ways of calculating GDP—it can be treated as the sum of all value added, or the sum of all income or the sum of all expenditure—and they can be used to cross-check each other, but the data needed for the different methods do not become available at the same time. In Britain, early estimates of GDP rely on proxies for output, such as business turnover. As more information on spending and incomes from, for instance, tax returns is available, the cross-checking begins, which usually sees the figure revised upwards. Changes to the way GDP is estimated also typically lead to upward revisions; statisticians become better at tracking new industries or business models. There is, it seems, an upward drift to GDP measures over time.

This article appeared in the Briefing section of the print edition under the headline "Rewriting history"

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