Addressing Measurement Error Bias in GDP with Nighttime Lights and an Application to Infant Mortality with Chinese County Data

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Abstract
As an emerging research area, application of satellite-based nighttime lights data in the social sciences has increased rapidly in recent years. This study, building on the recent surge in the use of satellite-based lights data, explores whether information provided by such data can be used to address attenuation bias in the estimated coefficient when the regressor variable, Gross Domestic Product (GDP), is measured with large error. Using an example of a study on infant mortality rates (IMRs) in the People’s Republic of China (PRC), this paper compares four models with different indicators of GDP as the regressor of IMR: (1) observed GDP alone, (2) lights variable as a substitute, (3) a synthetic measure based on weighted observed GDP and lights, and (4) GDP with lights as an instrumental variable. The results show that the inclusion of nighttime lights can reduce the bias in coefficient estimates compared with the model using observed GDP. Among the three approaches discussed, the instrumental-variable approach proves to be the best approach in correcting the bias caused by GDP measurement error and estimates the effect of GDP much higher than do the models using observed GDP. The study concludes that beyond the topic of this study, nighttime lights data have great potential to be used in other sociological research areas facing estimation bias problems due to measurement errors in economic indicators. The potential is especially great for those focusing on developing regions or small areas lacking high-quality measures of economic and demographic variables.

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