Oh, 100%. It’s a well-known phenomenon. The most famous recent example is “Leprechaun Economics” in Ireland. In 2015, their GDP supposedly grew by a completely insane 26%. Everyone knew this was fantasy. It turned out to be almost entirely on-paper growth from a few tech and pharma multinationals, like Apple, moving their massive IP assets to Ireland for tax purposes. It had basically nothing to do with the actual domestic Irish economy, which was just chugging along. The distortion was so bad that Ireland’s own statisticians had to invent a new metric, Modified Gross National Income, just to filter out the “leprechaun” money and get a realistic view of their own economy.
This is just a modern, high-tech version of the classic Dutch Disease where a particular sector booms, and foreign money floods in, which makes the country’s currency super strong. That sounds good, but it’s a disaster for every other sector. Suddenly, local farmers and factories can’t export anything because their goods are too expensive on the world market. So, while the headline GDP looks great, the rest of the economy, especially manufacturing and agriculture, gets hollowed out and stagnates.
It also happens in non-resource economies. A good example would be island nations like the Maldives, where tourism is the entire economy. Or think of countries like Switzerland or Luxembourg, where the financial sector is so enormous that its performance can easily mask underlying weaknesses in their domestic retail or manufacturing sectors. So yeah, it’s very common for analysts to have to surgically remove a single, over-performing sector from the data just to see what the actual health of the economy looks like. The headline GDP number is more of a statistical illusion than a useful metric in these cases.
Oh, 100%. It’s a well-known phenomenon. The most famous recent example is “Leprechaun Economics” in Ireland. In 2015, their GDP supposedly grew by a completely insane 26%. Everyone knew this was fantasy. It turned out to be almost entirely on-paper growth from a few tech and pharma multinationals, like Apple, moving their massive IP assets to Ireland for tax purposes. It had basically nothing to do with the actual domestic Irish economy, which was just chugging along. The distortion was so bad that Ireland’s own statisticians had to invent a new metric, Modified Gross National Income, just to filter out the “leprechaun” money and get a realistic view of their own economy.
This is just a modern, high-tech version of the classic Dutch Disease where a particular sector booms, and foreign money floods in, which makes the country’s currency super strong. That sounds good, but it’s a disaster for every other sector. Suddenly, local farmers and factories can’t export anything because their goods are too expensive on the world market. So, while the headline GDP looks great, the rest of the economy, especially manufacturing and agriculture, gets hollowed out and stagnates.
It also happens in non-resource economies. A good example would be island nations like the Maldives, where tourism is the entire economy. Or think of countries like Switzerland or Luxembourg, where the financial sector is so enormous that its performance can easily mask underlying weaknesses in their domestic retail or manufacturing sectors. So yeah, it’s very common for analysts to have to surgically remove a single, over-performing sector from the data just to see what the actual health of the economy looks like. The headline GDP number is more of a statistical illusion than a useful metric in these cases.