TILMA’s Bogus Math
The Government of British Columbia has finally released the Conference Board study projecting that TILMA will add $4.8 billion to the provincial economy.
Seeing the study’s methodology (or lack thereof) makes this projection seem even sillier than Marc and I had suggested.
The Conference Board “scored†eleven industries in seven regions on the following arbitrary scale of TILMA’s speculated impact on GDP:
-3 = reduction of more than 10%
-2 = reduction of between 5% and 10%
-1 = reduction of between 0% and 5%
0Â = no change
+1 = increase of between 0% and 5%
+2 = increase of between 5% and 10%
+3 = increase of more than 10%
The Conference Board did not assign a negative score to any industry in any region (see pages 10 and 36).
Based on a weighted average of these industrial/regional scores, it concludes:
“. . . the overall score for B.C. rounds to 0.76, which is a small positive impact. A score of 0.76 does not translate into a full five per cent impact, but 76 per cent of five percent, or an impact of 3.8 per cent on real GDP. Real GDP (at basic prices) in 2004 in B.C. was $127.9 billion; so the total impact of the agreement is estimated to be 3.8 per cent of total GDP, which equals $4.8 billion†(see page 38).
It seems that the Conference Board has doubled this estimate by fudging its own scale. A score of “+1†does not equal an increase of 5%, but an increase of between 0% and 5%, implying an average increase of 2.5%. Of course, 76% of 2.5% is 1.9%, which equals $2.4 billion of British Columbia’s 2004 GDP.
Erin: If anything, even that’s too generous.
Note at page 36 that the 77 regional scores weighted into the final result break down as follows:
0 – 34
1 – 38
2 – 5
It thus appears likely that the 1s are weighted toward the lower end of the scale. Which would also make sense given that even a single dollar of perceived positive effect takes the ranking into the “1” category.
Of course, there are tons of other methodological issues as well. I’m just not sure who deserves more blame – the B.C. government for commissioning such a brutally flawed study, or the Conference Board for being willing to carry it out.
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Jurist, you are completely correct. The Conference Board assigned a “+1” to any industry that might benefit from TILMA, including industries that barely engage in inter-provincial trade:
http://progecon.wordpress.com/2007/01/05/tilma%e2%80%99s-bogus-logic/
Therefore, the average increase associated with “+1” must be less than 2.5%. I was simply trying to demonstrate that, even being charitable to the Conference Board, its estimate is at least double what it should be.