Financial Transparency Coalition

Earlier this month, Nigeria leapt past South Africa to emerge as Africa’s largest economy. The financial world has watched the shift intently, with a keen interest on the amount of money coming into Nigeria. But keeping an eye on the huge sums of money flowing out is just as important.

Classification is important—in any discipline. Classification of symptoms helps doctors determine the correct treatment for patients. It helps us pick out the right book in a library, settle on the appropriate sentence for a convict, and compare species of plants. For similar reasons, researchers collect countries into groups based on a variety of metrics that define prosperity. These systems allow us to compare gains in development, to better understand how gains in development can be achieved, and determine appropriate aid packages. It isn’t always easy because there isn’t any one parameter that successfully defines wealth or prosperity.

For many years economists and policy makers have taken issue with GDP as a measure of national wealth. Statistics like these tend to over-emphasize certain elements of wealth and under-estimate others. Economists often point to the fact that, for example, income generated from the sales of cigarettes is included in GDP (something which might actually have negative value) while value generated from a stay-at-home-mom (or dad) is not. As I’ve noted, there are problems with other economic indicators like the Consumer Price Index (CPI), the unemployment rate, and the traditional measure of Illicit Financial Flows—all of which are used...