Genuine Savings as a measure of sustainable development. Towards a GDP replacement.
This projects aims to trace levels of sustainability from the mid 19th century to today using the Genuine Savings metric (henceforth, GS) . GS is an indicator propagated by the World Bank and frequently used in economics research; it measures progress and development and has proven to be an relevant indicator of sustainable development. GS is based on the concept of wealth accounting, and addresses shortcomings in conventional metrics of economic development by incorporating broader measures of saving and investment, including human capital (education), and natural resources by accounting for social costs of pollution and natural resource depletion. Its value as an indicator is determined the possibility to predict future standard of living on basis of genuine investments of the past.
A central shortcoming of GS data provided by the World Bank is its limited historical coverage; conventional GS data usually covers the period after 1970s. This limits the empirical studies linking past genuine investment and the future development of the standard of living. Our project addresses this gap by providing consistent historical estimates of GS since 1850 the necessary figures for economists, policy makers and general public to assess the role of sustainable development in a more holistic fashion. Several Sustainable Development Goals are enhanced when GS are used, such as "Affordable and Clean Energy", "Decent Work and Economic Growth" and "Climate action".
Final report
We have developed a new database of historical Genuine Savings (GS), an indicator of sustainable development promoted by the World Bank and widely used in contemporary economic research. GS is derived from theoretical work on wealth accounting and addresses shortcomings in conventional economic development metrics by incorporating broader measures of saving and investment, including human capital (education) and natural resource depletion. Its value as an indicator is determined by its ability to be used to predict future well-being. The project has provided consistent historical estimates of GS since 1850 for 35 countries to enhance, complement, and contextualise the work of the World Bank, scholars, and consultants.
The results presented in this project have strong implications for the present and future economic development of the countries considered in this study, and these results are linked to previous theory on the topic. E.g., the Hartwick rule dictates that exhaustible resource extraction can ensure weak sustainability if resource rents can be invested in such a way that the produced capital outweighs the consumed natural capital (Hartwick, 1977). Moreover, several studies argue that consumption is a function of (previous) capital accumulation since the productive basis, i.e. labour, physical, and intangible capital, are the productive forces used to generate income. The lessons from these studies are straightforward: current investment in physical capital, intangible assets such as human capital, and technology may result in higher consumption, wages, and well-being in the future. Likewise, erosion of the productive base due to depreciation of assets, pollution, and depletion of natural resources can limit, or even reduce, future well-being. The implications of this perspective for the ‘global’ economy are clear; To ensure future sustainability, the 'Hartwick rule' must be followed and technological progress, i.e. an increasingly intelligent use of existing assets, can play a significant role in future sustainability. However, in order to use GS in an applied policy framework, further studies and tests must be implemented. The data developed in the project are crucial input for an informed debate (McLaughlin et al, 2023).
References
John M. Hartwick "Intergenerational Equity and the Investing of Rents from Exhaustible Resources" The American Economic Review, Vol. 67, No. 5 (Dec., 1977), pp. 972-974 (3 pages)
McLaughlin, E., Ducoing, C., & Oxley, L. (2023). Tracing sustainability in the long run: Genuine Savings estimates 1850-2018 (No. w31155). National Bureau of Economic Research.
The results presented in this project have strong implications for the present and future economic development of the countries considered in this study, and these results are linked to previous theory on the topic. E.g., the Hartwick rule dictates that exhaustible resource extraction can ensure weak sustainability if resource rents can be invested in such a way that the produced capital outweighs the consumed natural capital (Hartwick, 1977). Moreover, several studies argue that consumption is a function of (previous) capital accumulation since the productive basis, i.e. labour, physical, and intangible capital, are the productive forces used to generate income. The lessons from these studies are straightforward: current investment in physical capital, intangible assets such as human capital, and technology may result in higher consumption, wages, and well-being in the future. Likewise, erosion of the productive base due to depreciation of assets, pollution, and depletion of natural resources can limit, or even reduce, future well-being. The implications of this perspective for the ‘global’ economy are clear; To ensure future sustainability, the 'Hartwick rule' must be followed and technological progress, i.e. an increasingly intelligent use of existing assets, can play a significant role in future sustainability. However, in order to use GS in an applied policy framework, further studies and tests must be implemented. The data developed in the project are crucial input for an informed debate (McLaughlin et al, 2023).
References
John M. Hartwick "Intergenerational Equity and the Investing of Rents from Exhaustible Resources" The American Economic Review, Vol. 67, No. 5 (Dec., 1977), pp. 972-974 (3 pages)
McLaughlin, E., Ducoing, C., & Oxley, L. (2023). Tracing sustainability in the long run: Genuine Savings estimates 1850-2018 (No. w31155). National Bureau of Economic Research.