Artificial nighttime lights and the “real” well-being of nations: ‘Measuring economic growth from outer space’ and welfare from right here on Earth

Abstract

GDP remains too much of an imprecise measure of the standard of living. There is a need for either substitutes or complements. Nighttime lights are a reasonable indicator of the extent, scale, and intensity of socio-economic activities, but a poor measure of national welfare. However, if nighttime lights are understood to constitute externalities, then their effects can be used to adjust measured growth for welfare. Nighttime lights appear to exert sub-optimal positive externalities in developing countries, and supra-optimal negative externality in developed countries. This means that even if we assume equal growth rates in developing and developed countries, welfare is enhanced by increased nighttime lights in developing countries and reduced by increasing nighttime lights in developed countries.