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Simpson’s paradox in GDP and per capita GDP growths

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  • Y. Ma

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

Suggested Citation

  • Y. Ma, 2015. "Simpson’s paradox in GDP and per capita GDP growths," Empirical Economics, Springer, vol. 49(4), pages 1301-1315, December.
    • Handle: RePEc:spr:empeco:v:49:y:2015:i:4:p:1301-1315
    DOI: 10.1007/s00181-015-0921-3
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    References listed on IDEAS

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    4. Y. Ma & Ye Zhang, 2014. "Resolution of the Happiness–Income Paradox," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 119(2), pages 705-721, November.
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    6. Wainer H. & Brown L.M., 2004. "Two Statistical Paradoxes in the Interpretation of Group Differences: Illustrated with Medical School Admission and Licensing Data," The American Statistician, American Statistical Association, vol. 58, pages 117-123, May.
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    Cited by:

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    3. Tian, Songtao & Liu, Zhirong, 2020. "Emergence of income inequality: Origin, distribution and possible policies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).

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