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Night-time Luminosity: Does it Brighten Understanding of Economic Activity in India?

Summary:
RBI released its Occasional Paper Series Vol. 40.  It has this paper by Anupam Prakash, Avdhesh Kumar Shukla, Chaitali Bhowmick and Robert Carl Michael Beyer on using night-time luminosity as an economic variable: In view of the growing popularity of night-time luminosity as a measure of economic activity, this study explores the scope for using such data as a supplementfor gross domestic product (GDP) in the Indian context. We found that night-light data exhibit reasonably robust correlataion with GDP and other importantmacroeconomic indicators like industrial production and credit growth at the national level. Quarter-on-quarter growth of night lights tracks growth of GDP reasonably well. Even after controlling for seasonal factors, the relationship of night lights with value-added

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RBI released its Occasional Paper Series Vol. 40.  It has this paper by Anupam Prakash, Avdhesh Kumar Shukla, Chaitali Bhowmick and Robert Carl Michael Beyer on using night-time luminosity as an economic variable:

In view of the growing popularity of night-time luminosity as a measure of economic activity, this study explores the scope for using such data as a supplement
for gross domestic product (GDP) in the Indian context. We found that night-light data exhibit reasonably robust correlataion with GDP and other important
macroeconomic indicators like industrial production and credit growth at the national level.

Quarter-on-quarter growth of night lights tracks growth of GDP reasonably well. Even after controlling for seasonal factors, the relationship of night lights with value-added in agriculture and private consumption expenditure turns out to be statistically significant.

In addition, night lights are strongly correlated with gross state domestic product (GSDP). The elasticity of night lights with respect to GSDP (i.e., the so-called inverse Henderson elasticity) is found to be statistically significant, though relatively smaller in magnitude than similar estimates available at the global level.

….

Notwithstanding the presence of a statistically significant relationship between night lights and GDP, there are certain limitations of using nightlight data for economic measurement. First, given that it is just a rough approximation of economic activity, it should be considered at best as an
additional indicator and not a substitute.

Second, although night lights correlate strongly with GDP, the correlation weakens substantially when growth rates are considered, which suggests that one needs to be careful while using night-light data for analysing short-term events. The existing literature finds similar result for other countries as well (World Bank, 2017).

Third, night lights as a proxy for economic activity do not distinguish between value added in different sectors.

Hmm..

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Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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