The power of data transparency: Enhancing growth in developing economies during and post-crisis

Making credible data public can support economic development. Data transparency has been found to increase scientific research, improve macroeconomic forecasts, bolster public confidence in policy making, enhance the effectiveness of monetary policy, and reduce the costs of public debt. A key question is whether we can go a step further and argue that all of this can enlarge the economic pie — specifically, increase economic growth, especially in times of uncertainty. We provided an answer in a recently published paper.

It is far easier to map out ways by which data transparency can boost the economy than to empirically substantiate it. Through data and evaluation, existing policies may be reformed and refined, while new policies may be experimentally evaluated. Countries with high-quality and broadly accessible information can make better decisions. Data that are accessible to the broader civil society, both local and global, can generate better policies and reforms. Substantial expansions in the frontier of knowledge occur when data are available to a broad brain trust. Researchers test hypotheses, debate and dispute findings, and establish robust facts and relationships to facilitate the emergence of the best ideas for addressing challenges. Data transparency can be particularly important during periods of uncertainty — for instance the Global financial crisis — when the demand for timely data is larger. Yet, the gains might take time to materialize.

Our study explores the relationship between data transparency and economic growth across developing economies during and after the Global Financial Crisis that erupted in 2009. Countries that have credible and timely data systems are likely to perform better during periods of uncertainty than countries that have poor data systems. Being transparent is a good antidote to uncertainty. We define data transparency as the regular publication of credible statistics by the state. We use the Statistical Capacity Indicator (SCI) as our measure of data transparency due to its time coverage. Data transparency encompasses the availability of microdata and the credibility of data through adherence to international standards. Figure 1 below shows some simple relationships between data transparency and economic growth for various samples used in our analysis.

^{Note: The top panel of figure 1 presents the average per capita growth rate for each tercile of SCI based on a panel data set of economies over time. The bottom panel provides the average log difference in GDP per capita between 2005 and 2018 for each tercile of the SCI score in 2005.} 

We deploy Dynamic Panel System GMM estimators as well as an Instrumental Variable approach, leveraging an array of instruments on a cross-section of economies to account for endogeneity. The instruments capture cultural and economic distance from advanced economies and government effectiveness. We find that a 1 percent increase in SCI score is associated with a 0.03 percent increase in the real GDP per capita per annum across panel and OLS cross-section estimations. The magnitude of the effect increases to 0.04 percent using the Instrumental Variables approach. The magnitude of the elasticities uncovered for SCI are larger than the elasticity of GDP per capita with respect to trade openness (0.01 percent) and even with respect to school enrollment (0.009 percent) in our sample.  If one believes these estimates, data transparency could be a more powerful driver of growth than either trade or schooling, even without accounting for the costs entailed in raising trade or schooling over time relative to improving data systems. It is worth noting that the estimation sample data shows smaller differences in growth rates across the sample ranked by SCI than the larger sample, see Figure 1 above, thus indicating that future research with a larger sample could yield higher estimates.

Data transparency is a policy instrument that perhaps has been ignored. This is one policy that makes little demands on public resources and does not require political reforms. There is much that future research could explore that we were unable to address. Our sample is a selection of developing economies, and the estimated effects may be larger for a global sample. Our study is limited to traditional sources of data, and thus the effect of new types of data such as big data is a promising area for future research. Last but not least, assessing the impacts of data systems on development would also include the thorny issues related to the spread of misinformation and disinformation that have arisen with the spread of digital technologies.

As the world becomes increasingly interconnected, the demand for credible and timely data will only grow. Policymakers in both developed and developing nations can leverage data transparency to foster more resilient and adaptive economic systems. By making data publicly accessible, governments can not only enhance domestic policy effectiveness but also contribute to global knowledge sharing and cooperation. This, in turn, can lead to more coordinated and effective responses to global challenges such as financial crises, pandemics, and climate change. Ultimately, embracing data transparency can serve as a cornerstone for sustainable economic growth and development, making it a critical policy tool going forward.