Bright idea suggests china, russia inflate reported economic growth – news – the columbus dispatch – columbus, oh electricity trading

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The working paper, by Luis R. Martinez of the University of Chicago, also found that authoritarian regimes are especially likely to artificially boost their gross domestic product numbers in the years before elections, and that the differences in GDP reporting between authoritarian and non-authoritarian countries can’t be explained by structural factors, such as urbanization, composition of the economy or access to electricity.

"The key question that the paper tries to tackle is whether the checks and balances provided by democracy" keep countries from exaggerating the health of their economy, Martinez said via email. "The way I try to answer the question above is by comparing GDP (a self-reported indicator, prone to manipulation) and nighttime lights (recorded by satellites from outer space and much harder to manipulate) as measures of economic activity."

Research published in 2012 by economists from Brown University and the National Bureau of Economic Research showed how changes in nighttime lighting closely tracked with changes in economic activity. "Consumption of nearly all goods in the evening requires lights," that paper explained. "As income rises, so does light usage per person, in both consumption activities and many investment activities."

As a result, increases in nighttime lighting generally track with increases in GDP. Side-by-side NASA images of India at night in 2012 and 2016 demonstrate that. Over that period, India’s economic output increased from $1.9 trillion in 2012 to $2.3 trillion in 2016.

For the world’s freest democracies — places such as the United States, Canada and Western Europe — a 10 percent increase in the average intensity of nighttime lighting in a given year correlated with, on average, a 2.4 percent increase in year-over-year GDP. Less free and open countries, however, reported larger GDP gains for the same percentage increase in nighttime lighting. And the least-free countries all showed huge increases in annual GDP relative to the freest countries, working out to between a half and a full percentage point of extra GDP for the same light increase.

"I find that a 10 percent increase in nighttime lights is associated with a 2.4 percent increase in GDP in the most democratic countries and with a 2.9 percent to 3.4 percent increase in GDP in the most authoritarian ones," Martinez said. The most obvious explanation is that those countries are the most likely to fudge their GDP figures to make their political leaders look good.

But maybe there’s something about authoritarian regimes that makes the relationship between light and GDP different in those countries. So Martinez attempted to see whether any other factors were at play. He tested whether the overall composition of the economy could explain the differences he observed. Nope. He did the same for urbanization and overall electricity use and found that those factors couldn’t explain the differences, either.

However, he did find that various political characteristics of countries could explain some differences. "The suspicious excess growth in GDP relative to growth in lights that is present in authoritarian regimes is smaller in the presence of independent political institutions (e.g., elected legislature), economic institutions (e.g., central bank has authority over monetary policy), and judicial institutions (e.g., having a national constitutional court)," Martinez found.

Beyond that, he found that authoritarian countries previously ruled by communist governments were particularly likely to report high GDP relative to nighttime lighting, as were authoritarian countries that were coming up on an election year.