BD economy’s resilience to political turmoil: Real or statistical?

Bangladesh rightly takes pride in its outstanding capacity to withstand and bounce back from shocks. Gross domestic product (GDP) growth rates in Bangladesh have been resilient to global shocks, natural disasters and political turmoil over the years. But, given the inexplicably high resilience that economic growth has shown to the recent political turmoil, it is worth asking to what extent that resilience is a real phenomenon or a statistical one?  Is economic growth really sustaining high levels despite the shocks that it is encountering, or is the reported growth resulting from imperfect information and assumptions embedded in the projections compiled in anomalous years?  
During the period between 2006 and 2015, Bangladesh experienced three major episodes of political instability and violence. Determining exactly how these shocks impact economic activity, and particularly the GDP growth rate, is a tricky exercise. Economic activity is sensitive to many influences, and it is difficult to isolate the impact of economic losses caused by natural or man-made disasters from other internal and external factors. Considerable methodological difficulties arise when economists try to quantify the real magnitude and consequences of shocks to the economy.
RECENT GDP GROWTH ESTIMATES FOR POLITICALLY TUMULTUOUS YEARS: This analysis attempts to answer a very specific question: What has been the impact of the recent political turmoil on the GDP growth estimates for the affected years? In recent politically-turbulent years, GDP growth estimates have eluded analysts and observers of the Bangladesh economy.
The Table below shows that GDP growth reportedly increased in fiscal year (FY) 07, FY14 and FY15--three of the most turbulent years in Bangladesh's recent political history. On the production side, only manufacturing appears to have had lower growth relative to the preceding normal year, and then only in FY07 and FY14, not in FY15. On the demand side, only public investment shows a consistent decrease in growth rate relative to the preceding normal years. Growth rates of the other expenditure components do not exhibit a consistent pattern across the two episodes covered in the Table.  (Note that constant price expenditure growth estimates for FY15 are not available yet.)

A STATISTICAL EXPLANATION OF GROWTH RESILIENCE: Bangladesh Bureau of Statistics (BBS) has recently published the details of how the national accounts estimates are prepared in its publication titled Bangladesh National Accounts Statistics: Sources and Methods, August 2014. This publication describes in some detail how BBS computes value-added in various sectors and different components on the expenditure side. As in most developing countries, for several parts of the accounts, only partial data are available, or complete data are available only for an earlier period. The national accountants then have to base their estimates on assumptions about relationships between some currently-available statistic and their target statistic.
The proxies and methods used to estimate production and expenditures work well in a normal year, but fail to capture the impact of disruptions in an abnormal year. No more than 34 per cent of total GDP on the production side is based on information that directly measures the target variable. This implies that a substantial portion of the accounts are still based on outdated statistics and assumptions pertaining mostly to inputs. These estimates can be based on information that dates back as much as 20 years. This may have mattered less when GDP was growing slowly, but with the rapid growth recorded since the 1990s, the assumption of stable relationships between input use and value-addition that underlie the estimates are highly questionable, particularly during times when exogenous shocks throw off track the economy's normal business activities.
If indeed reported growth in politically-volatile years is imperfectly computed, relying on old assumptions and relationships that do not really hold in those contexts, then Bangladesh's economic resilience may in fact be a mirage, and we may be too complacent about our economic well-being.
[(More on page 4. The writers are respectively Lead Economist (Bangladesh) and Country Director (Bangladesh, Bhutan and Nepal), World Bank. Feedbacks may be sent to Mehrin A. Mahbub e-mail: mmahbub@worldbank.org)]