Wealth, Welfare and Sustainability

Wealth, Welfare and Sustainability

Advances in Measuring Sustainable Development

Kirk Hamilton and Giles Atkinson

This important book presents fresh thinking and new results on the measurement of sustainable development. Economic theory suggests that there should be a link between future wellbeing and current wealth. This book explores this linkage under a variety of headings: population growth, technological change, deforestation and natural resource trade. While the relevant theory is presented briefly, the chief emphasis is on empirical measurement of the change in real wealth: this measure of net or ‘genuine’ saving is a key indicator of sustainable development. The methodological and empirical work is bolstered by tests of the predictive power of genuine saving in explaining future consumption and economic growth. Just as importantly, the authors show that many resource-abundant countries would be considerably wealthier today had they managed to save and invest the profits from natural resource exploitation in the past.

Chapter 3: Population Growth and Sustainability

Kirk Hamilton and Giles Atkinson

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, valuation


INTRODUCTION The World Development Indicators (World Bank, 2001) has highlighted since 1999 the ‘genuine’ rate of saving for over 100 countries around the globe. As a more inclusive measure of net saving effort, one that includes depletion and degradation of the environment, depreciation of produced assets and investments in human capital, genuine saving provides a useful indicator of sustainable development – the basic theoretical underpinnings of saving and sustainability were presented in Chapter 2. In the real world these theoretical results imply the common-sense notion that sustained negative rates of genuine saving must lead, eventually, to declining welfare. An important point in all of this, of course, is that it is per capita welfare that must be sustained. Genuine saving measures the change in total assets rather than the change in assets per capita. While genuine saving is answering an important question, therefore – did total wealth rise or fall over the accounting period? – it does not speak directly to the question of the sustainability of economies when there is a growing population.1 If genuine saving is negative then it is clear in both total and per capita terms that wealth is declining. For a range of countries, however, it is possible that genuine saving in total could be positive while wealth per capita is declining. The practical difficulty in dealing with these questions is that there are no widely available statistics on total wealth. Many (but not all) OECD countries publish national balance sheet accounts, which measure the total value...

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