Replication scandal: We might not need austerity measures after all

Screen Shot 2013-04-17 at 8.08.34 AMEconomists Carmen Reinhart and Kenneth Rogoff claim in “Growth in a Time of Debt” that countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate. Their paper is one of the most cited by governments to justify austerity measures – and it might be wrong, as a replication paper shows.

Claims in the original paper

The sharp run-up in public sector debt will likely prove one of the most enduring legacies of the 2007–2009 financial crises in the United States and elsewhere. We examine the experience of 44 countries spanning up to two centuries of data on central government debt, inflation and growth. Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. (…) Seldom do countries “grow” their way out of debts. The nonlinear response of growth to debt as debt grows towards historical boundaries is reminiscent of the “debt intolerance” phenomenon (…).

Claims in the replication paper

“[C]oding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not −0.1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower. We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff’s claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.”

Impact of the replication

In the past, policy makers have used the Reinhart-Rogoff results to show how debt and growth are connected, and to propose austerity measures. “If a country reached a debt burden of more than 90 percent of its annual economic output, the logic went, it would quickly fall into a debt trap that would leave it struggling to grow in the coming years. Prominent politicians — including Olli Rehn of the European Commission and Representative Paul D. Ryan, the chairman of the House Budget Committee — cited it as a reason to try to impose major budget cuts.” (New York Times) The newly published replication paper means that we might actually not be able to associate heavy debts with a ‘growth trap’. Austerity measures in the last years might be based on wrong results. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., even states that “this should be the cause for a major reassessment of the deficit reduction policies being pursued in the United States and elsewhere.”

What went wrong?

The blogs simply statistics and nextnewdeal.net explain what the replication paper uncovered:

  1. The original paper excluded important data from their final analysis
  2. The original paper used inappropriate weighting
  3. The original paper had an error in an Excel formula which dropped several countries from their final analysis

What will change?

Policy makers might not change their view of austerity measures, but they might simply have to cite another paper and answer criticism more carefully. But among researchers the value of replication will hopefully be recognized more than before. Without replication, economics, political science and policy makers might base their decisions and work on wrong results – even if it’s just because of an excel error.

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7 thoughts on “Replication scandal: We might not need austerity measures after all

  1. […] data of published work. Economist Paul Krugman commented in the New York Times on the recent replication scandal involving the Reinhart and Rogoff paper “Growth in a Time of Debt”. They claimed that […]

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  2. […] journals should require authors to provide their data set when submitting a manuscript. The replication scandal about Reinhart-Rogoff shook up the academic world. A spread sheet error and some other […]

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  3. […] replication of Reinhart-Rogoff on his university’s webpage which led to the largest recent replication scandal in economics, Vanhove decided to publish the replication as a working paper with data and Rcode. He wrote to the […]

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  4. […] I’m not quoting articles here because there are too many – some of which are mentioned on my own blog. […]

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  5. […] choices in almost all published work, and unless the original paper is very influential (eg, Reinhart and Rogoff), the audience for pure critiques is likely to be fairly […]

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  6. […] April, a failed replication of an austerity paper by Reinhart and Rogoff turned into one of the biggest scandals in replication in 2013. Economists Carmen Reinhart and Kenneth Rogoff claimed in “Growth in a Time of Debt” […]

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  7. […] and there is not a lot of reason to trust this work. It might be that the author just made a mistake in an excel spread sheet, or mislabelled a variable. Ideally, that would not […]

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