GDP Fraud: Countries ruled by an authoritarian regime often cheat on their official GDP data, a new study shows. No surprise, really. But how do we know this? Well, it's all about the light.X
What do we mean? A new working paper by Luis R. Martinez of the University of Chicago with the amusing title "How Much Should We Trust the Dictator's GDP Estimates?" explores the unusual, but direct, link between the amount of light produced by an economy as captured and measured through nighttime satellite photographs and its GDP.
The surprising result: Martinez concludes that economies in authoritarian countries such as China and Russia are not as large as official estimates show. In fact, they're way below what they report.
"Based on the autocracy gradient," Martinez writes, "I estimate that yearly GDP growth rates are inflated by a factor of between 1.15 and 1.3 in the most authoritarian regimes. Correcting for manipulation substantially changes our understanding of comparative economic performance at the turn of the 21st century."
Take China, as the most outstanding example.
For years, it officially reported 10%-plus GDP growth each year, with that number declining only in recent years to just above 6%. That growth rate was enough, according to various reports, to make it the world's No. 1 economy when figured on a purchasing power of parity basis (PPP) that is, what a dollar buys in China vs. what a dollar buys in the U.S.
And, several forecasts say it will challenge the U.S. for the No. 1 spot in the official, non-PPP GDP data, perhaps as soon as the next decade.
But is China really that big?
If Martinez is right, no.