Can satellite data on air pollution predict industrial production?

37 Pages Posted: 23 Nov 2021

Date Written: November 1, 2021

Abstract

The Covid-19 crisis has highlighted innovative high-frequency dataset allowing to measure in real-time the economic impact. In this vein, we explore how satellite data measuring the concentration of nitrogen dioxide (NO2, a pollutant emitted mainly by industrial activity) in the troposphere can help predict industrial production. We first show how such data must be adjusted for meteorological patterns which can alter data quality and pollutant emissions. We use machine learning techniques to better account for non-linearities and interactions between variables. We then find evidence that nowcasting performances for monthly industrial production are significantly improved when relying on daily NO2 data compared to benchmark models based on PMIs and auto-regressive (AR) terms. We also find evidence of heterogeneities suggesting that the contribution of daily pollution data is particularly important during “crisis” episodes and that the elasticity of NO2 pollution to industrial production for a country depends on the share of manufacturing in the value added. Available daily, free-to-use, granular and covering all countries including those with limited statistics, this paper illustrates the potential of satellite-based data for air pollution in enhancing the real-time monitoring of economic activity.

Keywords: Data Science, Big Data, Satellite Data, Nowcasting, Machine Learning, Industrial Production

JEL Classification: C51, C81, E23, E37

Suggested Citation

Bricongne, Jean-Charles and Meunier, Baptiste and Pical, Thomas, Can satellite data on air pollution predict industrial production? (November 1, 2021). Banque de France Working Paper No. 847, Available at SSRN: https://ssrn.com/abstract=3967146 or http://dx.doi.org/10.2139/ssrn.3967146

Jean-Charles Bricongne (Contact Author)

Banque de France ( email )

Paris
France

Baptiste Meunier

Banque de France ( email )

Paris
France

Equancy

France

HOME PAGE: http://https://www.equancy.fr/fr/

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