Illuminating GDP

Illuminating GDP

"GDP figures are ‘man-made’ and therefore unreliable," reported remarks of Li Keqiang (then Communist Party secretary of the northeastern Chinese province of Liaoning), March 12, 2007.

Satellites are great. It is hard to imagine living without them. GPS navigation is just the tip of the iceberg. Taking advantage of the immense amounts of information collected over decades, scientists have been using satellite imagery to study a broad array of questions, ranging from agricultural land use to the impact of climate change to the geographic constraints on cities (see here for a recent survey).

One of the most well-known economic applications of satellite imagery is to use night-time illumination to enhance the accuracy of various reported measures of economic activity. For example, national statisticians in countries with poor information collection systems can employ information from satellites to improve the quality of their nationwide economic data (see here). Even where governments have relatively high-quality statistics at a national level, it remains difficult and costly to determine local or regional levels of activity. For example, while production may occur in one jurisdiction, the income generated may be reported in another. At a sufficiently high resolution, satellite tracking of night-time light emissions can help address this question (see here).

But satellite imagery is not just an additional source of information on economic activity, it is also a neutral one that is less prone to manipulation than standard accounting data. This makes it is possible to use information on night-time light to monitor the accuracy of official statistics. And, as we suggest later, the willingness of observers to apply a “satellite correction” could nudge countries to improve their own data reporting systems in line with recognized international standards.

As Luis Martínez inquires in his recent paper, should we trust autocrats’ estimates of GDP? Even in relatively democratic countries, there are prominent examples of statistical manipulation (recall the cases of Greek sovereign debt in 2009 and Argentine inflation in 2014). In the absence of democratic checks on the authorities, Martínez finds even greater tendencies to distort the numbers.

But before getting to the specifics, it is instructive to take a look at the following two images of the Korean peninsula, the left panel in 1992 and the right panel in 2008 (both reproduced from Henderson, Storeygard and Weil, hereafter HSW). The most obvious feature of this picture is that, as U.S. Secretary of Defense Donald Rumsfeld once said, “North Korea is dark."  The more subtle point regards the change in light emissions in these two countries. Over the 16-year period between the two images, South Korea’s light emissions increased over 70 percent, while the economy more than doubled in size. By contrast, in North Korea, consistent with light emissions falling slightly, there was little or no growth. (Light emissions fell 7.4 percent, while, according to one source, GDP rose 6.8 percent.)

The Korean peninsula at night, 1992 and 2008


via Money, Banking and Financial Markets

September 19, 2018 at 08:28PM

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