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Measuring growth rate when values are negative

Economics Asked by DrStrangeLove on March 4, 2021

I am studying nightlights data and trying to model cross-sectional convergence in nightlights in India. However data has some stray light corrections, which has made some of the measurements below zero. Another point being, that the value of 0 has a representative meaning.

Hence any conventional way of measuring growth rates in literature is not applicable here.

In simple words: Nightlights are measured on a relative scale from 0 to 63. The corrections for cloud cover and ephemeral lights makes some of the data points negative. So:

It is analogous to ask what is the percentage growth in nightlights if it increases from – 1 DN to 0 DN

Even more problematic question is what is the percentage growth in nightlights if it increases from 0 DN to 2 DN.

I have already thought of adding an arbitrary but reasonable positive number to data points, to bring everything into a positive domain. But this is a very crude and not an elegant way to do this.

One Answer

For negative values alone you can define relative change as:

$$frac{X_t-X_{t-1}}{|X_{t-1}|}$$

This is quite common way to deal with rates of change when you have negative numbers. However, when the denominator is zero then the growth rate is not defined. This can solve any issue when zero is not a base.

When zero is the base unfortunately there is no way how you can calculate growth rate while keeping the zero there. This is because if you start from zero any change represents $infty$ increase. Going from 0 to 1 is $infty$ growth rate as well as going from 0 to 10 or 0 to 1000. You have to either get rid of a zero in some way or another or simply do not calculate growth rate but some other measure of change (e.g. simple change $X_t -X_{t-1}$).

I have already thought of adding an arbitrary but reasonable positive number to data points, to bring everything into a positive domain. But this is a very crude and not an elegant way to do this.

Yes, this is very crude way of doing it but perhaps there are more elegant alternatives. Using the temperature as an example a solution would be to convert degrees Celsius to Kelvin (with $T_{(K)} = T_{(°C)} + 273.15$) which would solve the problem.

Perhaps there is an another way to measure the quantity you want. Otherwise, adding an arbitrary constant would be a solution. It is hard to recommend any specific way without knowing all the details of the research.

Answered by 1muflon1 on March 4, 2021

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