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Business

Brown University economists measure GDP growth from outer space

For many developing countries, the data for measuring economic growth is unreliable or incomplete. In response, a team of economists at Brown have suggested a new framework for estimating a country or region’s gross domestic product (GDP) by using satellite images of the area’s nighttime lights.
Written by Chris Jablonski, Inactive on

For many developing countries, the data for measuring economic growth is unreliable or incomplete. In response, a team of economists at Brown have suggested a new framework for estimating a country or region’s gross domestic product (GDP) by using satellite images of the area’s nighttime lights. GDP (gross domestic product), is the best known measure of macro-economic activity.

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Credit: NOAA and USAF Weather Agency

In the image above, taken from space, you can see increased nighttime lighting which indicates economic growth in Poland and Eastern Europe between 1992 (left) and 2002 (right). Poland is in the top left quarter of each image.

The new methodology is explained in a National Bureau of Economic Research working paper written by economists, J. Vernon Henderson, Adam Storeygard, and David N. Weil.  In their case, the Brown researchers cite the Penn World Tables, one of the standard compilations of data on income, which rank countries with grades A through D by the quality of their GDP and price data. Whereas most industrialized countries receive a grade of A, about all sub-Saharan African countries get a grade of C or D, which is interpreted as roughly 30 or 40 percent margin of error. And several countries do not appear in the table, including Iraq, Myanmar, Somalia, and Liberia.

To improve national income estimates for these areas, team suggests using the changes observed in a country’s “night lights” as seen from outer space.  For this, they used U.S. Air Force weather satellite picture composites to analyze changes in a region’s light density over a 10-year period.

“Consumption of nearly all goods in the evening requires lights,” they write. “As income rises, so does light usage per person, in both consumption activities and many investment activities.”

When they applied their methodology to countries with low-quality national income data, the new estimates were significantly different. For instance, in the Democratic Republic of Congo, the light density suggests a 2.4-percent annual growth rate in GDP, while official estimates suggest a negative 2.6-percent growth over the same time period. Therefore, the Congo appears to be growing faster than official estimates suggest. Conversely, Myanmar has an official growth rate of 8.6 percent a year, but the lights data imply only a 3.4-percent annual growth rate, say the economists.

While Henderson, Storeygard, and Weil don’t envision the lights density data as a replacement for official figures, they say that it can provide a better indicator of how these economies really are performing when added to existing data. “Our hope is that people start using this, either when they don’t have actual data on economic growth ... or when the numbers are pretty bad,” said Henderson, professor of economics. “This is just a way to get better estimates.”

Source: Brown University

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