Night Lights and Economic Activity in India: A study using DMSP-OLS night time images

Abstract

This paper investigates the association between night lights and GDP estimates for India at the district level. While many studies are finding a high degree of association between economic activity as measured through the Gross Domestic Product (GDP) and night lights internationally, there is a lack of understanding of whether and how night light data are correlated with economic activity at the sub-national level in emerging economies. This achieves more significance in economic monitoring and policy-making as estimates of GDP are not available at geographically disaggregated level, and even if available there is a large time lag involved before they are released. Stable light data obtained from night time images of 2008 captured by Defense Meteorological Satellite Program – Operational Linescan System (DMSP-OLS) satellite are used in the study. The data records artificial lights from human habitations from the earth surface and is a surrogate of the level of development of an area. The data on GDP at the district level for the year 2008 have been sourced from Indicus Analytics that has used data from government sources and a method of estimation suggested by the Central Statistical Office of the Government of India. Using multinomial non-linear regression techniques the paper finds that indeed GDP at the district level is significantly explained by night lights in the area. It also finds that the non-linearity is much stronger for metropolitan cities where GDP levels are far higher than a linear model can explain. Conversely, in areas where agriculture and forestry activities are higher, the use of night lights in a linear model overestimates the GDP.