Wealth, Welfare and Sustainability
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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.
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Chapter 9: Resource Price Trends and Prospects for Development

Kirk Hamilton and Giles Atkinson


INTRODUCTION1 This chapter explores empirically the effect of resource price trends on measures of income and saving. This is motivated by a basic intuition: if a country’s terms of trade are improving and can be expected to continue to improve – an exporter of increasingly scarce natural resources would be an example – then this country should be able to increase its consumption without harming its future prospects. Its Hicksian income, in other words, should increase as a result of these favourable trends. Sustained unfavourable trends, by the same reasoning, should decrease Hicksian income. Vincent et al. (1997) made this intuition precise for the case of optimal resource extraction in the face of exogenous resource price changes. They then examined the case of Indonesia empirically. In this chapter we offer several extensions to the work of Vincent et al. First, we develop an explicit model of income and saving in a small resourceexporting country where both resource prices and international interest rates vary exogenously. We then derive a precise formula for saving when resource prices grow at the exogenous international interest rate. Finally we present estimates of adjusted saving rates for roughly 100 countries by extrapolating significant resource price trends for a range of natural resources. The model developed below extends, for non-autonomous economies, a result presented by Hamilton and Clemens (1999). We show that ‘genuine’ saving, suitably defined, just equals the change in social welfare (present value of utility) measured in dollars. This provides the link between resource price...

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