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Aggregation Bias in Proxy Measurement: Nighttime Lights and Local Economic Activity

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  • Davide Fiaschi
  • Angela Parenti
  • Cristiano Ricci

Abstract

This paper studies when high-resolution signals aggregated to administrative units can recover unobserved local economic activity. We develop a reverse-regression framework for signals generated by activity but used to predict it at coarser spatial supports. The main theorem decomposes predictive elasticity into elementary elasticity, reverse-regression attenuation, and a spatial aggregation term driven by unit size and within-unit dispersion, showing aggregation pulls elasticities toward one. Monte Carlo evidence confirms the decomposition and clarifies transferability conditions. Applications to VIIRS nighttime lights and local GDP or income in Brazil, Italy, the United States, Indonesia, and Kenya support local calibration mainly in richer contexts.

Suggested Citation

  • Davide Fiaschi & Angela Parenti & Cristiano Ricci, 2026. "Aggregation Bias in Proxy Measurement: Nighttime Lights and Local Economic Activity," Papers 2607.14825, arXiv.org.
    • Handle: RePEc:arx:papers:2607.14825
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    File URL: https://arxiv.org/pdf/2607.14825
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