The pros and cons of big data used as economic signals

News: Big data is being used for various types of analysis like economic growth. However, there are certain pros and cons linked to this type of analysis.  

Google recently released some anonymized data for India, based on mobile phone locations of the users. As per the data, People are spending more time at home, rather than at work places or retail stores or parks. It means people are facing issue of restricted mobility once again.  

The new forms of data are very useful in tracking economic activities in a country, without waiting for structured government surveys and quarterly estimates. These structured surveys fail to understand a rapidly evolving situation.  

For example; mobility data can predict a change in economic activities. 

How mobility data is linked to economic activities? 

Economists at the Organisation For Economic Co-operation and Development (OECD) observed a link between mobility trends and economic growth. They found out that impact of mobility indicators on economic growth has weakened with successive quarters during pandemic. There are two possible reasons for this. 

First, policymakers are restricting specific types of economic activity, instead of blanket ban on movement.  

Second, Org and employees have learned to adapt to newer forms of work and leisure. 

For example, in the second and third quarters of 2020, a 10% point change in mobility was associated with a 2.2% change in economic growth. While in 4th quarter, it only resulted in a 0.9% change in economic growth.  

Challenges associated with big data-based analysis 

However, there are challenges associated with big data-based analysis.  

For example, economists are using measurement of night lights past sundown as a proxy for economic activity. However, some research papers have observed that clouds interfere with the way data on night lights can be captured by satellites. Thus, during cloudy months, readings are low.  

Second, the data from e-way bills generated during goods movement is a very useful advance indication of economic activity. Such e-way bills are not generated for services. Thus, a shift of demand from goods to services must result in a low number of e-way bills. So, it does not mean a slowdown in economic activities.  

Source: This post is created based on the article “The pros and cons of big data used as economic signals” published in Live Mint on 12th Jan, 2022.