Tokyo Workshop on International and Development Economics (TWID)　2021

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Jesus Felipe (Asian Development Bank) and Scott Fullwiler (University of Kansan-Missouri)
Why the Feldstein-Horioka “Puzzle” remains unsolved

Night lights data are increasingly used by economists, especially for developing country research. Many of these countries have limited capacity to generate timely and accurate sub-national statistics on economic activity so satellite data seem attractive. Most studies have used Defense Meteorological Satellite Program (DMSP) data that are flawed by blurring, lack of calibration, and top- and bottom-coding. These noisy data only weakly relate to traditional economic activity measures for lower levels spatial units. More accurate data from the Visible Infrared Imaging Radiometer Suite (VIIRS) of instruments on the Suomi satellite are available since 2012 but are rarely used by economists. This paper examines how recent published findings for developing countries based on DMSP data for very small spatial units change when the more accurate VIIRS night lights data are used. Our first example finds that economic activity is far more concentrated in low lying, flood-prone, areas than is apparent with the DMSP data. Our second example shows that urbanization, as proxied by night lights, is not associated with better child nutritional outcomes in Nigeria, contrary to claims in a study using DMSP data. In both examples, spatially mean-reverting errors in the DMSP data cause econometric bias that distorts policy implications.