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Macroeconomics and the Environment

Essays on Green Accounting

Salah El Serafy

Though scientists and environmentalists have long expressed concern over the rapid deterioration of the global environment, economists have largely failed to recognize the issue’s relevance to their field. Salah El Serafy argues for an increased focus on the economic aspects of environmental degradation, calling for a fundamental shift in how economists measure and discuss national income.
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Chapter 9: Proper calculation of income from depletable natural resources

Essays on Green Accounting

Salah El Serafy


With minor alterations this chapter reproduces a paper that has been the most cited of my work (El Serafy, 1989). Its genesis goes back to the 1970s when I tried to point out that most of the oil exporters were poor developing countries, and their putative incomes, reckoned along traditional SNA lines, were exaggerated, and should not be confused with their revenue. This I had outlined in an essay on ‘The oil price revolution of 1973–1974’ (El Serafy, 1979) and developed in a subsequent paper titled ‘Absorptive capacity, the demand for revenue and the supply of petroleum’ (El Serafy, 1981). The last mentioned paper contained an appendix showing my formula for estimating ‘true income’ out of petroleum revenues – the same formula I later reproduced in El Serafy (1989) for estimating the user cost. ‘True income’ and ‘user cost’ are complements that add up to revenue. It was not until November 1986 at the fourth UNEP–World Bank international workshop, which I happened to chair, that I presented a draft of the paper that now makes up the present chapter. I had widened my coverage to address natural resources in general, not just petroleum, and asserted that the same approach was applicable also to renewable resources when these were being ‘mined’. Mine had been a lonely voice earlier on, and in fact, when I first presented my paper on ‘Absorptive capacity’ at the University of Colorado, Boulder, in 1980, Professor Penrose of London University, who was chairing the session, denounced my presentation as ‘economic nonsense’.

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