Simpson’s paradox in GDP and per capita GDP growths

Y. Ma ()

Empirical Economics, 2015, vol. 49, issue 4, 1315 pages

Abstract: Simpson’s paradox occurs frequently in economic data analysis, wherein aggregation is a common practice. Yet, this paradox is not well known among researchers in economy. In this article, we present several real-world examples of Simpson’s paradox in economic statistics, including gross domestic product (GDP) growth and per capita GDP growth aggregations across developing and developed countries. These manifestations of Simpson’s paradox highlight some important issues in developing economies and have implications on social and economic policies. We also present Simpson’s paradox for continuous variables, and its relationship with ecological correlation using empiric economic data. We show that failure to recognize Simpson’s paradox and ecological correlation can cause inaccurate interpretations of economic data. Furthermore, even when one recognizes Simpson’s paradox in the data, one may still make wrong interpretations, wrong policy decisions, or business decisions. We recommend causal analysis to discern the confounding variable(s) and to apply sound statistical modeling in the face of such a paradox. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Simpson’s paradox; GDP growth; Per capita GDP growth; Aggregation; Reversal; Ecological correlation; Compounding (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00181-015-0921-3

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