Mismeasuring long-run growth: the bias from splicing national accounts—the case of Spain

Abstract

Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may seriously bias the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast-growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, is seriously flawed as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.

Appendices

Appendix 1: Revised CEN70 series (CEN70^R) from the expenditure side

CEN70 GDP estimates on the expenditure side were also adjusted. While Gandoy (1988) provides alternative value added series at factor cost for industry (${\text{VA}}_{fci}^{G}$) and construction (${\text{VA}}_{fcc}^{G}$), Gómez Villegas (1988) presents new series for fixed domestic capital formation in industry (${\text{GCF}}_{i}^{G}$) and construction (${\text{GCF}}_{c}^{G}$). Thus, in order to adjust the aggregate figure for investment in CNE70 (GCF^cen70), I firstly computed the share of value added at market prices (VA_mp) allocated to investment in industry and construction, according to Gandoy (1988) and Gómez Villegas (1988), (${\text{GCF}}_{i}^{G} /{\text{VA}}_{{{\text{mp}}i}}^{G}$ and ${\text{GCF}}_{c}^{G} /{\text{VA}}_{{{\text{mp}}c}}^{G}$), which implied adjusting value added to include taxes on production and imports net of subsidies.⁴⁰ Then, I applied this share to the difference between the value added estimates at factor cost in Gandoy’s (${\text{VA}}_{{{\text{fc}}i}}^{G}$ and ${\text{VA}}_{{{\text{fc}}c}}^{G}$) and in CEN70 (${\text{VA}}_{{{\text{fc}}i}}^{{{\text{cen}}70}}$ and ${\text{VA}}_{{{\text{fc}}c}}^{{{\text{cen}}70}}$).

$${\text{GCF}}_{i}^{\text{add}} = \left( {{\text{GCF}}_{i}^{G} /{\text{VA}}_{{{\text{mp}}i}}^{G} } \right) \times \left( {{\text{VA}}_{{{\text{fc}}i}}^{G} {-}{\text{VA}}_{{{\text{fc}}i}}^{{{\text{cen}}70}} } \right)$$

(5)

$${\text{GCF}}_{c}^{\text{add}} = \left( {{\text{GCF}}_{c}^{{^{G} }} {\text{VA}}_{{{\text{mp}}c}}^{{^{G} }} } \right) \times \left( {{\text{VA}}_{{{\text{fc}}c}}^{G} {-}{\text{VA}}_{{{\text{fc}}c}}^{{{\text{cen}}70}} } \right)$$

(6)

So the additional investment—that is, the portion of gross capital formation not included in CNE70—was obtained. Thus,

$${\text{GCF}}^{\text{add}} = {\text{GCF}}_{i}^{\text{add}} + {\text{GCF}}_{c}^{\text{add}}$$

(7)

And the revised figure for gross capital formation was derived as,

$${\text{GCF}}^{1970R} = {\text{GCF}}^{{{\text{cen}}70}} + {\text{GCF}}^{\text{add}}$$

(8)

Then, I adjusted private consumption figures in CEN70 for the changes introduced in gross capital formation. That is, I assumed that the additional value added in industry and construction (derived by deducting CNE70 value added from Gandoy’s estimates) lessens the additional investment (GCF^add) accrued to private consumption, since the values for net exports of goods and services (NX^cen70) and public consumption (GOVT^cen70) provided by CEN70 were obtained from a sound statistical basis.⁴¹ That is,

$${\text{CONS}}^{\text{add}} = \, (({\text{VA}}_{{{\text{fc}}i}}^{G} + {\text{VA}}_{{{\text{fc}}c}}^{G} ) - ({\text{VA}}_{{{\text{fc}}i}}^{{{\text{cen}}70}} + {\text{VA}}_{{{\text{fc}}c}}^{{{\text{cen}}70}} )) - {\text{GCF}}^{\text{add}}$$

(9)

And the revised figure for total private consumption was reached as,

$${\text{CONS}}^{1970R} = {\text{CONS}}^{{{\text{cen}}70}} + {\text{CONS}}^{\text{add}}$$

(10)

Lastly, the new estimates of GDP at market prices were obtained as,

$${\text{GDP}}_{mp}^{1970R} = {\text{CONS}}^{1970R} + {\text{GCF}}^{1970R} + {\text{GOVT}}^{{{\text{cen}}70}} + {\text{NX}}^{{{\text{cen}}70}}$$

(11)

Appendix 2: GDP at current and constant prices, 1954–2013: alternative splicing series

See Tables 4 and 5.

Table 4 GDP at current prices, 1954–2013: alternative splicing series (million Euro)

Table 5 GDP at 2010 prices, 1954–2013: alternative splicing series (million Euro)