Estimating Gross Domestic Product, Informal
Economy and Remittances of Mexico using
Nighttime Satellite Imagery
Tilottama Ghosh
Dr. Paul C. Sutton
Dr. Christopher Elvidge
Radiance-calibrated Nighttime Image of the
World, 2000-2001
Source: Earth Observation Group, NGDC, NOAA
Nighttime Image of the World
• Images are derived from hundreds of orbits of the Defense
Meteorological Satellite Program’s Operational Linescan System
• Screened for clouds, fires and other ephemeral light sources
• In the radiance calibrated nighttime images, the “brightness
values” of the lights are converted from digital numbers to
radiance values
• Radiance – calibrated nighttime Images of 1995-1996, 20002001, and 2005-2006 are available
• Helps to obtain brightness variations within urban centers
• Detection of diffused lighting in sparsely populated rural areas
• 30 arc-second grids (1 km2 at the equator), WGS 1984
coordinates
• Processed at NGDC, NOAA – Boulder, Colorado
Radiance-calibrated nighttime lights of the
United States
Source: Elvidge C. D., K. E. Baugh, J. B. Dietz, T. Bland, P. C.
Sutton, and H. W. Kroehl. 1999a. Radiance calibration of DMSPOLS low-light imaging data of human settlements. Remote Sensing
of Environment 68: 77-88.
Use of Nighttime Images
Objective of Study
• Develop an alternative method to estimate the
economic parameters of Gross Domestic Product
(GDP), Informal economy and Remittances of an
upper middle income country, Mexico based on –
 Reliable estimates of sub-national GDP of a
developed country, the United States, and
 Based on the close relationship between lit urban
areas, urban population and GDP, as derived from
radiance calibrated nighttime satellite image
What caused the rise of informal economy in Mexico?
• Neo-liberalism – Privatization, Deregulation and Trade
Liberalization
• Mexico – joining GATT in 1986, 1995 WTO substituted
for GATT; signing NAFTA with the U.S. and Canada in
1994
• Consequences:
 Downsizing the role of the state and employment in the
traditional public sector
 Creation of more temporary, low wage and unprotected
employment
 Outsourcing and subcontracting
 Increased participation of women in the workforce
Informal Economy
Informal Economy
• Manifested in industrialized, transition and developing
economies
• Includes enterprises that are not legally regulated
• Size of the unit is usually very small
• Also includes employment relationships that are not
legally regulated or protected
• Includes informal employment both within and outside
agriculture
• Includes self-employment in small unregistered
enterprises and wage employment in unprotected jobs
• No secure work, worker’s benefits or social protection
Remittances
• Funds sent by international migrants to their
countries of origin
Some other definitions
• Gross Domestic Product (GDP): Total market value of all
final goods and services produced within a given country or
region in a given period of time (usually a calendar year)
• Gross National Income (GNI):
It is GDP plus net receipts of primary income
(compensation of employees and property income from
abroad)
• GNI and GDP are usually expressed in PPP US dollars
• This provides a better comparison of average
income or consumption between economies
Where does informal economy and remittances
fit in GDP and GNI?
• Informal economy contributes to a large portion of the
employment and the GDP of the nations, especially for the
developing countries
• By definition, remittances are included in the GNI of a
country
• GNI thus includes both informal economy and remittances
Importance of Study
• Problems of estimating employment in the informal
economy and its contribution towards GDP
 Complexity of definition – Employment in informal
enterprises and those employed informally (without any
benefits and social protection) in formal enterprises
 Data on informal sector employment has been collected in
only five countries – Tunisia, South Africa, Kenya, Mexico
and India
 Indirect methods are still used to estimate informal
employment outside informal enterprises and thus total
informal employment
•Problems associated with data on remittances
 Formal remittances may go unrecorded, due to
weaknesses in data collection – related to both
definitions and coverage
 Flows through informal channels – unregulated
money transfers or friends and family who carry
remittances
 Remittances are misclassified as export revenue,
tourism receipts, nonresident deposits, or even
foreign direct investment
 International comparability of data is difficult
 In implementing the International Statistical definition of
the informal sector, countries apply different criteria of
non-registration, enterprise size
 Some countries include informal employment in the
agricultural sector and some countries do not
 Data on the informal sector (excluding agriculture) are
often compared to data on the total workforce (including
agriculture) resulting in underestimation of the informal
sector
Importance of Study – Inconsistencies in
the data
Country
United States
United States
United States
Estimate
Year
GNI
GNI
GNI
Source
Method
Value (in dollars)
2000
World Dev.
Report
2002
Atlas methodusing 3 year
average
exchange rate
9,646 billion
2000
World Dev.
Report
2002
Purchasing
Power Parity
9,646 billion
2000
Population
Reference
Bureau
In US Dollars
8,059 billion
Value (in dollars)
Country
United States
United States
Estimate
GDP
GDP
Year
Source
Method
2000
World Dev.
Report
2002
Average official
exchange
rate of that year
9,883 billion
2000
US Bureau
of
Economic
Analysis
Current US$
9,749 billion
Importance of Study
Country Estimate
Mexico
GNI
Year
Source
Method
Value
2000
INEGI
In Pesos
5,491 billion
In U.S. Dollars
$ 574 billion
Mexico
GNI
2000
In terms of
exchange rate
(1US$=9.57 Mex
Peso)
Mexico
GNI
2000
In terms of PPP
In U.S. Dollars
$ 886 billion
2000
World Dev. Report
2002
Atlas Method - using
three year average
exchange rate
$ 498 billion
2000
World Dev. Report
2002
Purchasing Power
Parity
$ 864 billion
In U.S. Dollars
$ 382 billion
Mexico
Mexico
Mexico
GNI
GNI
GNI
2000
Population
Reference
Bureau
Importance of Study
Country Estimate
Mexico
GDP
Year
Source
Method
Value
2000
INEGI
In Pesos
4,984 billion
In U.S. Dollars
$ 521 billion
In U.S. Dollars
$ 804 billion
Mexico
GDP
2000
In terms of
exchange rate
(1US$=9.57 Mex
Peso)
Mexico
GDP
2000
In terms of PPP
Mexico
Mexico
GDP
GDP
2000
World Dev. Report
2002
2000
World Dev. Report
2002
Average official
exchange rate of
that year
Purchasing Power
Parity
$ 575 billion
$ 896 billion
The Economists’ blunder in overestimating the Chinese
economy by 4 trillion dollars!!! (New York Times, December 9,
2007; Reported by Eduardo Porter)
So, why nighttime imagery again?
 Nighttime imagery serves as a proxy measure of
population and correlates of population such as
economic activity and energy consumption
 Proxies of socio-economic data has been
generated at regional, national, sub-national, and
other irregular spatial units
 Available in time series, allows for change
detection
The Land/Geographic Unit area grids (2000) obtained from
Global Rural–Urban mapping project dataset produced by
the Center for International Earth Science Information
Network
 Urban area extent grid
expressed in square kms
 Derived from NOAA’s stable
city lights dataset
 ESRI- Digital Chart of the
World’s populated places
 Tactical pilotage charts –
Africa and Latin America
 30 arc-second grids
 WGS 1984 coordinates
Landscan Population Database (2000)
Developed in the Oak Ridge
National Laboratory (ORNL)
Estimating urban populations
at risk
Apportioning census counts to
each grid cell at sub-national
levels on the basis of likelihood
coefficients based on proximity
to roads, slope, land cover,
nighttime lights.
30 arc-second grids and WGS
1984 coordinates
Other Data Sources
 Informal economy data:
 Mexico – INEGI - System of National Accounts, Accounts by
Institutional Sectors, Satellite account of the informal sub-sector of
homes, 1998-2003
Informal Economy (2000)
In dollars
In Pesos
616.1 billion
In PPP US Dollars
99.4 billion
 Contribution of informal economy towards GDP in Mexico was
12.3 percent in 2000 (INEGI)
 Contribution of informal economy towards GDP in the U.S. is
approximately 10 % (Mattera 1985; Investor’s Business daily
1998; Losby et al 2002; Mctague 2005)
 Data on remittances from Bank of Mexico’s website
 In 2000, remittance inflow into Mexico was 6.6 billion dollars
Analyses of Data
 Google Earth for determining urban cluster threshold
 ArcView GIS 9.3 for raster and vector analyses
 JMP, Version 6 for statistical analyses
Selecting threshold for demarcating urban clusters
Nighttime satellite image
Threshold of 20*1.35*10-10
watts/cm2 /sr
Google Earth
Why 20*1.35*10-10 as the threshold value?
Kansas
• The same threshold is used for delineating the urban areas of Mexico
• A higher threshold would not capture the smaller urban areas of Mexico
Population and Area of the clusters are
determined
‘Sum’ of the area of the clusters are obtained
‘Sum’ of the population of the clusters are
obtained
• Disaggregated (fine resolution) numbers for money are
not available, so disaggregated population numbers
serve as proximate measures of GDP
• Estimated urban population of the clusters is
determined from the log-log relationship of the area and
population of the urban clusters in the US
• Estimated urban population of the states of the US are
determined
• Estimated urban population and official GDP figures of
the US are used to estimate GDP of the states of the
US
• All of US’s parameters are then used to estimate the
urban population and GDP of the states of Mexico
Log – log Relationship between Population and Area of the Urban Clusters
Equation weighed by population so
that larger cities have a greater
influence on the estimation of the
regression parameters than the
smaller cities
Slope and intercept parameters are used to
estimate the urban population of the states of
Mexico
Ln(Est Urb Pop) = 4.4234017 + 1.192936*Ln(Area)
R2 = 0.96
Estimated urban population of the clusters :
Estimated urban population = Exp (4.4234017 + 1.192936*Ln(Area))
Of the urban clusters of US
Population Density of the Clusters
• Population
density of the clusters are found out (Population/area) or population per km2
• Population of the states are determined using the Spatial Analyst tool in ArcGIS
Sum of Light of the States of US
• Sum
of lights of all the states of the US are determined using the Spatial Analyst tool in
ArcGIS
• Lights = money. Includes all those lights (that is, money) below the selected threshold
level
Estimating GDP of the states of US
• Estimated urban population of the states of the US, Sum of lights of the states of
US and Published, official figures of the GDP of US are used to estimate the
estimated GDP of the states of US
• The published, official sub-national GDP values of the US are considered more
reliable than that of any developing countries
Ln (Actual GDP)
• 10 percent contribution of informal economy towards GDP is added to GDP
Slope and intercept parameters are used to
estimate the GDP of the states of
Mexico
Ln (Est Urban Pop)
Sum of lights
Weighing by Actual GDP
R2 = 0.84
Ln(Est GDP) = (5.3297817 + 0.3941618 * Ln(Est Urb Pop) +
0.00000020098 * Sum of Lights)
Est GDP = Exp (5.3297817 + 0.3941618 * Ln(Est Urb Pop) +
Of the
0.00000020098 * Sum of Lights)
states of US
Tables of Actual, Estimated GDP and Percentage
Residual
Actual and Estimated GDP of the states of US
Actual versus Estimated GDP of US
P < .0001
Residual Map
Percentage Residual = ((Actual GDP – Estimated GDP) /Actual GDP) * 100
Assumptions of this Analysis
• Patterns of Light are proxy measures of patterns
of Money (e.g. GDP)
• Income distributions within a country are uniform
(people in Texas have the same average
incomes and income distributions as people in
Nebraska, California, and Florida)
• We use disaggregate population information as
a proxy measure of money because
disaggregate GDP info not available
Demarcating lit areas of Mexico
Nighttime satellite image
Same threshold of 20*1.35*10-10
watts/cm2 /sr is used
Google Earth
At this threshold level many of
the smaller urban settlements
are captured
Determining population and area of the clusters
Estimated urban population of
the clusters determined using US
Parameters:
Estimated urban population of the urban
Clusters of Mexico =
Exp (4.4234017 + 1.192936*Ln(Area))
‘Sum’ of the area of the clusters are obtained
Population Density of the Clusters
• Population
density of the clusters are found out (Population/area) or population per km2
• Population of the states are determined using the Spatial Analyst tool in ArcGIS
Sum of Light of the States of Mexico
• Sum
of lights of all the states of the Mexico are determined using the Spatial Analyst
tool in ArcGIS
• Lights = money. Includes all those lights (that is, money) below the selected threshold
level
Estimating GDP of the states of Mexico
The GDP of the states of Mexico are determined using
US’s parameters
Ln(Est GDP) = (5.3297817 + 0.3941618 * Ln (Est Urb Pop) +
0.00000020098 * Sum of Lights)
Est GDP =
Exp (5.3297817 + 0.3941618 * Ln (Est Urb Pop of Mexican states) +
Of the
0.00000020098 * Sum of Lights of the Mexican states)
states of Mexico
Tables of Actual, Estimated GDP and Percentage
Residual
Actual and Estimated GDP of the states of Mexico
Actual vs Estimated GDP of Mexico
Distrito Federal and Mexico state are outliers
Actual vs Estimated GDP of Mexico
Mexico
Excluding Distrito Federal improves the R2 and Significance level
Residual Map
Percentage Residual = ((Actual GDP – Estimated GDP) /Actual GDP) * 100
Preliminary Results (Using US’s parameters to
estimate urban population and also GDP)
In dollars
Estimated GDP of Mexico (formal+informal+remittances)
1202 bn
Official estimates of the GNI of Mexico
(formal+informal+remittances)
886 bn
Underestimated remittances and informal economy
estimates
316 bn
Official estimates of Informal economy in 2000
99 bn
Official estimates of remittances in 2000
7 bn
Total official estimates of informal economy and
remittances
106 bn
Underestimated remittances and informal economy
estimates
316 bn
Total official estimates of informal economy and
remittances
1056 bn
Magnitude of underestimation
3 times