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 5: Resources, Growth and the ‘Paradox of Plenty’

Kirk Hamilton and Giles Atkinson

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


INTRODUCTION1 The re-emergence of interest in the determinants of economic growth has provided a reminder that a range of policy-related variables can have a persistent influence on economic growth rates. Parallel contributions to the theory and measurement of sustainability have focused on the implications of imprudent use of natural resources and inefficient levels of environmental degradation for sustaining economic development. One important link between these two questions is the paradoxical but seemingly robust finding of a negative and significant relationship between natural resource and the growth rate of per capita gross domestic product (GDP). This finding has been characterized as confirming the ‘resource curse hypothesis’ or ‘paradox of plenty’. Not surprisingly, there has been considerable effort expended to understand why the resource curse arises and, more importantly, whether it can be avoided. The focus of this book on sustainability would suggest that the problem might lie in the mismanagement of the portfolio of assets of resource-abundant countries. That is, in practice, it appears that the prudent path of saving resource rents has been difficult to achieve. In this chapter, we explore further the links between some of those factors said to be important to understanding sustainability and the resource curse hypothesis. Using simple cross-country growth regressions, we examine this relationship using a direct measure of natural resource abundance: the share of resource rents in GDP for a range of natural resources including energy and mineral and timber resources. In doing so, we explore a number...

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