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Newer Need Not be Better: Evaluating the Penn World Tables and the World Development Indicators Using Nighttime Lights

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  • Maxim Pinkovskiy
  • Xavier Sala-i-Martin

Abstract

Nighttime lights data are a measure of economic activity whose error is plausibly independent of the measurement errors of most conventional indicators. Therefore, we can use nighttime lights as an independent benchmark to assess existing measures of economic activity (Pinkovskiy and Sala-i-Martin (2016)). We employ this insight to find out which vintages of the Penn World Tables and of the World Development Indicators better estimate true income per capita. We find that revisions of the PWT do not necessarily dominate their predecessors in terms of explaining nighttime lights (and thus, predicting unobserved true income). In particular, we find that the PWT 7.1 chain-based GDP series substantially outperforms the constant-price series in both PWT 8.0 and PWT 8.1, the two most recent vintages of the PWT. We additionally find that the World Development Indicators are as good, and often better, measures of unobserved true income as are any recent vintages of the Penn World Tables. Furthermore, we find that each new round of the International Comparisons Programme (ICP) has improved the WDI's ability to predict log unobserved true income. We also find that vintages tend to be good or bad at predicting unobserved true income roughly equally across the sample period, and do not tend to be particularly good at predicting unobserved income in the year of their price survey. We conclude that GDP series based on unadjusted domestic growth rates alone predict growth rates of true income better than series based on PPP adjustments to growth rates.

Suggested Citation

  • Maxim Pinkovskiy & Xavier Sala-i-Martin, 2016. "Newer Need Not be Better: Evaluating the Penn World Tables and the World Development Indicators Using Nighttime Lights," NBER Working Papers 22216, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22216
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    3. Peter A.G. van Bergeijk, 2017. "Making Data Measurement Errors Transparent: The Case of the IMF," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 18(3), pages 133-154, July.
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    5. Roger, Lionel, 2019. "A replication of "The long-run impact of foreign aid in 36 African countries: Insights from multivariate time series analysis" (Oxford Bulletin of Economics and Statistics, 2014)," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-53.
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    8. Campbell, Susanna G. & Üngör, Murat, 2020. "Revisiting human capital and aggregate income differences," Economic Modelling, Elsevier, vol. 91(C), pages 43-64.
    9. Adhvaryu, Achyuta & Fenske, James & Khanna, Gaurav & Nyshadham, Anant, 2021. "Resources, conflict, and economic development in Africa," Journal of Development Economics, Elsevier, vol. 149(C).
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    15. van Bergeijk, P.A.G., 2017. "Measurement error of global production," ISS Working Papers - General Series 632, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    16. Pavel S. Pronin, 2020. "International Trade And Democracy: How Trade Partners Affect Regime Change And Persistence," HSE Working papers WP BRP 75/PS/2020, National Research University Higher School of Economics.
    17. Masayuki Kudamatsu, 2019. "Observing Economic Growth in Unrecognized States with Nighttime Light," OSIPP Discussion Paper 19E002, Osaka School of International Public Policy, Osaka University.
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    19. Roberto Samaniego & Juliana Sun, 2020. "The Relative Price of Capital and Economic Structure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 127-155, July.

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    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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