To this day, little information exists on the effects of the financial crisis on the UAE economy.
Why we need the Gulf's vital statistics
Do you know who an economist's best friend is? It's not Ben or Paul, but Fred: the Federal Reserve Economic Database. This contains more than 20,000 macroeconomic time series - repeated observations of key economic variables - and is publicly available on the website of the Federal Reserve Bank of St Louis. Along with other micro data available from the US Census Bureau, and innumerable free online sources, economists have used these resources to inform decision-making by the private sector and the US government.
And while similar databases exist for other OECD countries, the same cannot be said for the GCC. By making this information publicly available, these countries sustain a vibrant and open world research community; they in turn benefit from years of accumulated research that can be used to inform public policy. In addition, the private sector benefits from a more stable economic climate. Last week Dubai took a step in the right direction when its statistics centre released information on a series of key indicators - from divorce rates to the number of new buildings completed - to provide a snapshot of life in the emirate. While the move was warmly welcomed, economists warned that gaps remain and that overall numbers that provide insight for policymakers remained murky.
Better data encourage economic stability. This is especially important for Gulf economies, which are prone to greater macroeconomic volatility. Output growth in the Gulf will vary by a greater proportion because the dynamics of labour migration are likely to accentuate any disturbance to the economy. The exchange rate regime of the UAE also tends to amplify business cycles: after a demand shock, output tends to rise by more than in an economy with a floating exchange rate because monetary policy must accommodate output growth to keep the exchange rate fixed. Economists sometimes say that fiscal policy is "hyper-effective" in such an environment.
To this list of factors that generate economic volatility, we can add another item: the lack of systematic data about economic activity. Unlike the OECD, the UAE does not release high frequency, time series macroeconomic data that would inform decision-makers in the private sector about the health of the UAE economy. In the United States, high frequency data are publicly available on output, inflation, unemployment, labour productivity, consumer sentiment and many other important variables. In addition, the private sector collects ultra-high frequency data in the goods market as well as the financial markets. This can be used by economists and the private sector alike to paint an up-to-the-minute picture of the economic landscape of the US economy. In contrast, economists interested in the Gulf region have only access to outdated, low frequency data from the IMF and the World Bank databases.
The current financial crisis proves that all the data in the world may not be enough to question conventional wisdom - but the aftermath of the financial crisis has been quite instructive. Marcus Brunnermeier of the National Bureau of Economic Research, in his working paper "Deciphering the Liquidity and Credit Crunch 2007-08", uses economic, financial and event data to explain how the banking system unravelled. His expertise, along with that of many others, is currently being used by the US government to reform the banking sector.
More prosaically, publicly available data have been instrumental in allowing experts within the US government, the private sector and academia, to weigh in on the bank bailout that was probably responsible for the current road to recovery. To this day, little information exists on the effects of the financial crisis for the UAE economy. Publicly available data on house prices, trading volume, and other relevant information could be analysed to better understand how policy should be modified so that the effect of the next external shock - which will happen! - is smaller in magnitude.
To be sure, some data are currently available from government websites and other privileged sources and the government's recent efforts at making more high frequency data on inflation and other measures of macroeconomic performance available is a good start. State-of-the-art economic and financial analysis, however, require vastly more data - without it clear policy inferences cannot be drawn. Politicians usually take credit for any good economic news; in OECD countries, however, the existence of reliable data allow for a sober analysis of the facts. The private sector can, in turn, make decisions tied to economic fundamentals rather than the latest headlines.
In the GCC, this kind of analysis is far more difficult, as decision-makers only have a partial view of the whole picture. This climate encourages bad decision-making, both in the public sector and by private individuals, and may have aggravated the impact of the crisis in Dubai. Disseminating better data is one important step the government can take to put knowledge back into the "knowledge economy". The financial crisis also hit home in the domestic financial markets, which suffered losses that were disproportionate to those that occurred in many OECD countries. The UAE equity markets continue to suffer from severe informational asymmetries that make international institutional investors think twice about putting their money in the UAE - regional stock markets, therefore, lack "market depth" which results in greater price fluctuations after a news event.
Many sources of data exist: because the UAE economy is open, high-frequency macro data from other countries can be used to draw inferences about various aspects of the UAE economy that are exposed to external shocks. But much more can be done: companies in the region specialise in the collection of time-series micro data on many demand-side aspects of the economy, such as traffic in shopping malls, spending within stores, prices, and other trade data. These data are currently used by the private sector - at a cost - to infer demand growth and production requirements for various goods and services.
By allowing the research community, and more generally the private sector, access to some aggregated version of these data, the Government would be tapping into a very large pool of economic expertise. Greater collaboration in collecting and releasing data with other GCC government institutions would also allow researchers to analyse how variations in economic outcomes across the Gulf affect individual country experiences.
Micro data can overturn conventional wisdom and shed light on simple and cheap ways to change behaviour. Noting that Americans tend to save very little, Thaler and Sunstein, in their book Nudge, propose that governments should encourage employers to automatically enrol employees in pension schemes. They argue that because people suffer from "status-quo bias", they are more likely to stay enrolled in the scheme even if they are occasionally tempted to overspend.
Using existing data, one can uncover interesting if unsettling relationships. Levitt and Dubner in Freakonomics famously, and controversially, claimed that legalising abortion could reduce crime rates. In both cases, the authors of these studies required data to test their theories; without that, an in-depth understanding of one's economy and society is a guessing game. Public policy, which affects everyone, suffers the same fate.
The benefits of better data collection and dissemination will be immediate: from more investor confidence to greater stability in equity markets and better macroeconomic performance, better data will allow for more careful economic and social policy, more informed decision-making by actors within the private sector, and generally a better understanding of UAE society. As an (in)famous statesman once said: "There are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know." To this list, we can add "unknown knowns", data that we know exists, but to which access is limited. This is one item the UAE would do well to cross off its own list.
Dr Tarek Coury is an economist at the Dubai School of Government and the Harvard Kennedy School