September 2004 Archives

Flawed International Comparisons

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Most international studies use Gross Domestic Product (GDP) as the basis for comparing the economic performances of countries. In Ireland's case, GDP is a poor basis for comparison as it includes profit repatriations by multi-nationals. Gross National Product (GNP) is a much better measure of income and wealth as it excludes these repatriations which exceed €20 billion a year.  In 2003, Ireland's GDP exceeded GNP by 19% while GDPs and GNPs of the other 24 EU States diverged in most cases by less than 1%.

Use of GDP as the basis for comparison leads to over- or understate Ireland's performance as the following examples illustrate:

  1. The recent OECD Report on Education indicated that Ireland ranked 23rd out of 30 countries in terms of public expenditure as percentage of Gross Domestic Product (GDP). If this data is rebased to use GNP, Ireland jumps to a more respectable joint 18th place.

  2. A recent Central Bank report indicated that Ireland had the sixth highest private sector credit as % GDP for euro countries. After rebasing to GNP, Ireland jumps to third position and this puts our national borrowing in a completely different and more serious context.

  3. The latest UN Human Development Report indicated that public expenditure on health in Ireland was 4.9% of GDP and lowest for fifteen countries listed. When rebased using GNP, Ireland's percentage rises to 6.1% and its ranking improves to joint 8th place. This is distinctly better than being "paddy last" and begs additional questions about use of resources in this key area.

International statistics should always carry a "wealth warning" but those used to measure and compare Ireland's performance need special care. While international organisations are unlikely to revise their data to take account of Ireland's unique circumstances, data published in Ireland or used for policy development should be correctly based. A simple rule of thumb is to add a quarter to recent GDP-based statistics to rebase them to GNP and reflect Ireland's underlying performance.

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