Thread by @ingridharvold

As debates on economic convergence rage on, one element has gone unquestioned: the use of GDP as a measure of growth. My new @GPIDnetwork Working Paper w/ @jacob_assa closes this gap.

Read the short or long versions here 👇

And here's a thread. 1/9 gpidnetwork.org/2018/11/13/imp…

Rather than being in line with economic theory, GDP reforms are made through a techno-political process.

As the yardstick is redefined to fit the new strengths of now developed countries, we deem it as a form of Kicking Away the (Statistical) Ladder.

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Examples of GDP reform include reclassification of financial intermediation services, R&D activities & owner-occupied dwellings as productive activities. This means finance has been ‘made productive’ (as @bceagle71 puts it), R&D is no longer considered an intermediate input...3/9

...and home ownership is now included in GDP in the form of the imaginary rent that homeowners would have paid to a landlord had they owned their home (with the peculiar effect of making countries with housing bubbles appear to grow more rapidly).

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An example of the effects can be seen in the output of USA & China. The reforms of the System of National Accounts (SNA) that determine how GDP is measured, first in 1993 and then 2008, had the effect of increasing the GDP of the US substantially, but not that of China.

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As an alternative we propose a measure of 'Core GDP’ which excludes imputations & includes only what can be directly measured. In current GDP values are imputed based on their net incomes (this is circular logic, as also recognized by @MazzucatoM).

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Core GDP also correlates much better with employment trends than the now imputation-heavy GDP (the latter therefore gives the appearance of "jobless growth"). See the difference between how convergence between the West & the Rest is seen through Core GDP vs. standard GDP 👇.
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Beyond convergence debates, there are geopolitical and political economy implications related to GDP measurement (see also @DianeCoyle1859). E.g. incentives for LICs to become MICs (based on GDP) (see @MJerven) & voting shares in international insitutions such as @WorldBank.
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Given how central GDP is to economic reporting, research & for our perception of growth, we hope the discussion on growth measurement can be brought into the public debate. Our paper is hopefully a small contribution to that end. Full paper: gpidnetwork.org/wp-content/upl… 9/9

Comments welcome @JustinSandefur @dev_a_patel @arvindsubraman @paulkrugman @BrankoMilan @CarterPaddy @sanjaygreddy @CGDev @collin8818 @delong @DietzVollrath @rodrikdani