Asymmetrical Information

They count drug exports or other black market trade.

P

My guess is, in the case of Liberia and Syria, that their black economies consist of a large number of tradables, which show up in other countries national accounts. Liberia in addition does not currently have a national statistics service to speak of, so any calculations, including that of GDP, have to be derived for what availbale data there is. The probability of measurment error is not insignificant.

Regarding Aruba, the island's something of an entrepot; gross exports may well be 126% of GDP, but that my be no indication of domestic value added.

I'm no economist, but it must have something to do with how the terms are defined. How's that for a SWAG?

Maybe they're trading with Mars, as the recent survey on the US' current-account deficit speculated.

My guess: it's gross imports and exports, stuff that is basically passing through.

If I live in a leafy suburb, my trees might produce a million dead leaves every fall. But the wind might blow 5 million of my neighbor's leaves through my property before the first snow fall.

Does it have to do with all the ships they have under their flags?

And/or, aren't a lot of those coins you get ads for in your checking statement technically Liberian coins?

They used Aurthur Anderson as the accountant firm.

These numbers can only happen in economies where with negligible domestic production, allowing transactional services to really stand out.

I think Ron's right on Liberia. Liberian-registered shipping is probably the reason for their numbers. Diamond trade might also account for some.

Aruba has to be based on financial services, arising from its popularity as a tax haven. Syria is a scary one. Transshipment of weaponry and other big-ticket items might be a big component of their numbers.

World in Figures '04? Beats me, but I'd go with earlier comment - flags. The question to ask though, is a flag-based economy feasable in the long-term?

"Syria is a scary one. Transshipment of weaponry and other big-ticket items might be a big component of their numbers."

Nah, it's probably the under-the-table oil numbers to Iraq & so on.

The World Bank has somewhat different data containing a similar issue of lesser magnitude (link). They report trade in goods as a share of GDP as being 244.7% in 1998 and 173.1% in 2001.

Definition: Trade in goods as a share of GDP is the sum of merchandise exports and imports, measured in current U.S. dollars, divided by the value of GDP in U.S. dollars.

So if you export most of your production, probably in the form of agricultural products in the case of Liberia, use most of the recipts from exports to import goods and throw in a little outside investment and debt... it's not hard to see. I'd look for more data but I'm going to bed. :-)

I dunno. The CIA Fact Book for Liberia gives...

Imports: $165 million
Exports: $110 million
GDP: $3.5 billion

http://www.cia.gov/cia/publications/factbook/geos/li.html

Of course, the CIA's had some credibility issues lately. Maybe its best people werew off in Nigeria when this was being tabulated.

In any event, unless my memory fails me GDP does not include "trade" but rather "net exports", which = + exports - imports. In which case if exports and imports balance "trade" can be arbitrarily larger than GDP, in principle.

Um, bad statisticians?

Death threats from their leaders?

They used metric by mistake?

Lots and lots of corruption?

Ah, for Aruba the CIA fact book gives:

GDP: $1.94 billion
Imports: $2.21 billion
Exports: $1.88 billion

And "exports" carries the helpful parens "(includes oil re-exports)" while the listing of major imports includes "crude oil for refining and reexport".

So they have an oil refining industry there and a lot of oil flows through the country in and out. The value of the oil coming "in" is subtracted, the value of the oil going "out" is added, and their net is added to GDP.

No particular reason why this couldn't be the case for any small country; only the residual of imports and exports goes into the GDP calculation.

Looks like they're defining "trade" as the *sum* of imports and exports, while the *difference* (exports minus imports) is a component of GDP.

Such was/is the same in much of SE Asia. The issue here is the definition. The calculation for GDP ends in the expression X-M (exports minus imports). The import figure being a detraction to GDP. If you add them together it is easy to get a huge and misleading signal - and one that appears larger than GDP.

A majority of countries who have "export-led" economies either fall into this category today or have done so in the past. It's easy to contemplate how this works: Let's assume you have an island with a low-cost labor force. You import components for sneakers worth 90 "umpas" and sell the shoes for 100 umpas and this is all you do... Your GDP is 10 umpas - the value added from assembling the shoes but your trade is 190 umpas or 190 times your GDP.

Of course no economy works quite this way, but this is essentially how total trade can easily be greater than GDP.

It also explains the "J" curve effect to GDP following a devaluation - in the short run the cost of imported components for the production of exports rises and lowers GDP by increasing the cost of impots in foreign currency terms. Improved terms of trade eventually correct the situ and improve the situation (unless you are highly indebted in forex terms then you enter a whole new world of pain...)

It's also worth clarifying that there's a difference between GDP as a market-determined figure, and GDP as a PPP (purchasing-power-parity) figure. GDP is a summed market-value figure. GDP PPP is an estimate created by adjusting GDP to a basket-of-goods price index in each country. Those of you pulling information from the World Factbook will notice that their figures are PPP, which is logical since the point of it is to compare living standards across countries. The figures I quoted were standard GDP. Jim Glass and others quoted GDP PPP. In the case of Liberia, the latter is something near five times as great.

Syria transhipped much of the oil from Iraq because one of the main pipelines runs from Kirkuk to the Syrian coast. It seems odd that this could actually exceed the GDP, but perhaps.

The last I checked, Aruba wasn't a country.

Aruba: imports crude oil from Venezuela, refines it and exports value added products to other island nations and the US.

Liberia: various black/gray market items, such as diamonds, humans, rare ores (tantalum, ect), small arms (AK-47s & RPGs), illegal drugs, legal drugs obtained illegally, ect. that come in the back door in the hands of bandit armies/gangs and are then re-exported by Liberian (Taylor's) monopolies.

Syria: sanctioned Iraqi oil imported, some refined and resold back to Iraq, some sold on world market. Regular Lebanese economic activities and exports diverted through Syrian monopolies.

Also - all governments lie.

Hi -

I've been dealing with this for the last ten years or so, but on a sectoral/industry level. The Italian textile and the Italian clothing industry went this way around 1985 or so, and it took a while to figure this out.

The story is simple: NIPA basically assumes that imports are always destined for domestic consumption. Now, this is generally the case, but there is a significant demand for goods from overseas that are then used directly to be re-exported.

Hence import quotas well over 100% are not unusual in countries and industries that are heavy traders. Demand from the wholesale sector - imex people, basically - also adds significantly to the export side as well.

You also get effects of repricing, especially from the wholesale side of the equation. Company A in Italy imports cotton from Egypt at $30/ton and turns around and exports it to Germany at $50/ton, and all of a sudden you have an import quota that is ok, but an export quota that booms.

Fundamentally, it is a conceptual flaw in the NIPA accounts, since NIPA does assume that imports are only for domestic consumption and exports are locally produced. While the UN definitions of NIPA are being revised, they are not being revised to take this into account: hence this will be a continuong problem, one that you can only make sense of if you are privy to detailed import-export statistics, usually at the individual industry level for all directions of trade.

But who has time to go through 14,000 industrial goods heading in 270 directions?

Let me know if you need more detail and examples of this, it really is something I've been dealing with for at least 10 years...

John F. Opie

If I recall correctly (and I should, I'm teaching Macro this semester) GDP only includes final goods and services, while trade might include unfinished goods.

In the case of Aruba, the oil processing stuff might not count in GDP unless it was consumed locally, yet count in trade. Liberian diamonds might have the same issue.

Mike, I have been to Aruba. It sure is a country, they may still pledge allegiance to the Queen(? or is it king) of the Netherlands, and dip their french fries in mayo instead of ketchup, but a country it is. Some folks still consider it part of Netherlands Antilles.

Don't forget to add tourism to the equation when considering Aruba. They have these cool blue lizards that I was always trying to catch. Freaked my parents out.

I agree with the trans-shipment stuff from my memory of Aruba. I seem to remember that Aruba was the port of entry (to other ex-Dutch colonies) for things like oil and cars/trucks.

GDP = Consumption + Investment + Government Spending + (Exports - Imports). If exports are very large, and so are imports, both can be larger than GDP.

OK, I shared this with my community college Macro instructor--"and the answer is?"...and curious about the source materiel as well...

Cheers,

DD

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