Statistical Capacity and Corrupt Bureaucracies

Abstract: In many developing countries, economic statistics (such as the growth rate of GDP) are highly imprecise--which makes it difficult to evaluate economic reforms and learn "what works". Improving economic statistics has thus become a top priority of development organizations. This paper, however, isolates a mechanism through 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 sensitive information, when spreading through the bureaucracy, is misused to exact bribes, they have weaker incentives to invest. As a result, the effects of economic reforms are muted, making it even harder to detect "what works". To suppress this harmful mechanism, efforts to improve economic statistics should be accompanied by institutional measures such as the strengthening of the independence of the statistical office.