Statistical capacity and corrupt bureaucracies

Abstract

In many developing countries, economic statistics (such as the growth rate of GDP) are imprecise, making it difficult to evaluate economic reforms and learn “what works”. Improving economic statistics has thus become a priority of international organizations. In this paper, we isolate an insidious mechanism—a type of observer effect—by which a push for better statistics can make matters worse. Precise statistics require the collection of data from a large number of firms. If firms suspect that detailed information, when spreading through the bureaucracy, is misused to collect bribes, they have weaker incentives to invest. As a result, the effects of reforms are muted, making it even harder to discover “what works”. To suppress this mechanism, efforts to improve economic statistics should be comprehensive and also include institutional aspects.