Monday 22 September 2014

2014-13 Stocks and flows again

In post 2014-09 I talked about mistakes in comparing stocks and flows. Here is a good illustration, although the author of this Globe and Mail article actually may have remembered something from an economics class.
He compares foreign direct investment inflows with GDP. Sounds right: he compares flows with flows.

But while he writes about FDI inflows, he uses data on FDI stocks. So he does end up comparing the stock of direct foreign investment with GDP (a flow).

How bad is it? In a word: terrible. This is the main Saturday business article - two solid pages. According to the article, in some contries the "flow" of FDI is larger than GDP. That does not make any sense, since total investment in a country is a fraction of GDP (in Canada around 20%).

Is it difficult to find actual data? Not at all. Here is what I found googling OECD FDI (since he claims the data are from an OECD report) - see page 7. Here is the page from Wikipedia

The moral of the story: when you read something - think whether it makes sense. And the moral of the story for the Globe - not good

No comments:

Post a Comment