Out of this world Macroeconomic Data

Out of this world Macroeconomic Data

May 3, 2012 Research Insights, Macroeconomics Research
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(Last Updated On: January 23, 2017)

Measuring Economic Growth from Outer Space

  • Vernon Henderson, Adam Storeygard, and David Weil.
  • A recent version of the paper can be found here.

Abstract:

GDP growth is often measured poorly for countries and rarely measured at all for cities. We propose a readily available proxy: satellite data on lights at night. Our statistical framework uses light growth to supplement existing income growth measures. The framework is applied to countries with the lowest quality income data, resulting in estimates of growth that differ substantially from established estimates.  We then consider a longstanding debate: do increases in local agricultural productivity increase city incomes?  For African cities, we find that exogenous agricultural productivity shocks (high rainfall years) have substantial effects on local urban economic activity.

Data Sources:

2014-12-16 11_09_34-iussp2009.princeton.edu_papers_91832
Figure 1 in this paper

Discussion:

When I’m really board I pick up a copy of the latest AER and scan through for interesting articles. After reading the AER I often fall into a deep sleep coma, but this time it was a bit different. I came across an article that measures economic growth from outer space–how cool is that?

This research piece uses data on light activity at night as measured from satellites to estimate economic activity across the globe. In countries like the US, where we have an established and organized infrastructure to collect and analyze economic data, there is no reason why satellites would come in handy. But what about African villages? War-torn countries? Or civilized countries where the government is in charge of fabricating the numbers (i.e., China)? We can quickly see why the final frontier might actually be the closest method possible to figure out what is going on in the real-world.

In the author’s words:

In the worst case, some countries simply have no national accounts data available at all.  For example, Iraq, Myanmar, Somalia, and Liberia are among the countries not included in the most recent (6.2) version of PWT.  Finally for most developing countries and many developed ones, reliable data on output at the sub-national level, particularly cities but even larger regions, is not regularly available.

Here is an example of how the methodology works. In 1998 there was a large deposit of rubies and sapphires accidentally discovered in southern Madagascar, near Ilakaka and Sakaraha. These towns went from backwoods villages to population centers with over 20,000 inhabitants. Economic growth obviously occurred, but no data on the subject is available–until now. The authors shed “light” on the problem (yes, that was an attempt at a joke!)

Investment Strategy:

Think outside the box.

Maybe hire a satellite to watch for activity outside of corporate headquarters?

Or how about scouting out light data on the US and trying to beat out the gdp forecasts coming out of Wall Street?

The world is your oyster, go get it.

Commentary:

The authors of this paper are geniuses.

 


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.