How effective are sanctions on North Korea? Popular DMSP night-lights data may bias evaluations due to blurring and poor low-light detection

The effect of sanctions on economic activity in targeted countries is increasingly studied with satellite-detected night-lights data because conventional economic activity data for such countries are either unavailable or untrustworthy. Many studies use data from the Defense Meteorological Satellite Program (DMSP), designed for observing clouds for short-term weather forecasts rather than for long-run observation of economic activity on earth. The DMSP data are flawed by blurring, and bottom-coding due to poor low-light detection. These errors may bias evaluation of sanction effectiveness. To show this we use a difference-in-differences analysis of impacts on night-lights of the shutdown of the Kaesong Industrial Zone in North Korea, which South Korea closed in 2016 in response to North Korea's nuclear tests. We estimate impacts of about 50% declines in luminosity, depending on the choice of comparison region, and these effects are always precisely estimated if data from the accurate Visible Infrared Imaging Radiometer Suite (VIIRS) on the Suomi-NPP satellite are used. Yet with the more widely used DMSP data, apparent impacts are imprecisely estimated and are far smaller. A decomposition suggests much of the attenuation in estimated treatment effects if DMSP data are used comes from false zeroes, which are also likely to matter to evaluations in other poorly lit places.