Proposal preview

Beyond GDP. Sustainable and unsustainable development in the long run.

Over the past quarter-century, Genuine Savings (GS) –or Adjusted Net Savings (ANS)– has emerged as an important indicator of Sustainable Development. It is based on the concept of wealth accounting (Hamilton & Hepburn, 2014) and represents a measure of how the country’s total capital stock (physical, natural, social, institutional and human) changes year-on-year. Following the pioneering studies of Pearce & Atkinson (1993) and Hamilton (1994), the World Bank has published estimates of GS from the mid-1990s to the present (World Bank, 1995, 1997, 2015). Hamilton & Clemens (1999) and World Bank (2006, 2011) illustrate the nature of these estimates for almost all countries in the world and show how a negative GS indicator can be interpreted as a signal of unsustainable development. Current World Bank data to support the calculation of GS at the country level stretches back to the 1970s, and provides empirical evidence of the level of sustainable/unsustainable economic development throughout the world. However, the social and economic development is, by definition, a long-run process where path-dependence, persistence and multiple equilibriums interact in the construction of “the future”. What can we learn from history about the sustainable development? We propose a session to discuss on this subject and to offer novel views about the economic history of regions and countries in order to contribute to the current debate about development policies.
Therefore, we propose analysing the sustainable development of different economies in historical perspective focusing on empirical approaches on the topic. Based on the notion of GS as a framework we expect to receive methodological and empirical works (either preliminary or advanced papers) which consider different components of the estimation. GS adds up the value of year-on-year changes in each individual element of capital stock and we will look for long-run estimates (from the 19th century to nowadays) offering information about fixed capital formation, natural resource use and educational investment, as well as the respective shadow prices to reflect the marginal value product of each stock in terms of its contribution to welfare. Changes in the stock of certain pollutants (such as CO2) –valued using marginal damage costs– can also be presented in the estimates of the index. Changes in human capital can be approximated using expenditures on education, as a rate of return on time spent in education, or as a measure of discounted lifetime earnings by skill level. The effects of technological change, resource price appreciation (capital gains/losses) for resource exporters and importers, and population change can also be incorporated into the GS indicator and we will welcome efforts in this direction.
Studying the long 20th century through the lens of GS (in their different approaches) enables us to make a broader contribution to the understanding of the economic history of the period and to shed light on the prediction of the future well-being. Over this period interacted phases of increasing world integration (as the First Globalization era) with other of progressive enclosing (the interwar period), deep dislocations of the international economy (with both World Wars) as well as episodes of sustained growth in the world core together with persistent divergence in the periphery. Our aim is to identify different stylized facts of the international economy in order to contribute to the construction of a research agenda on the matter and to enhance long-run welfare measures.

We welcome new submissions of papers for this session that consider long run estimates of GS and the discussion about the different components of the concept, especially those focused on natural capital and depletion of natural resources.
To apply please send an outline of your proposal (up to 1000 words) detailing aim of the paper, methodology and main conclusions.

Organizer(s)

  • Henry Willebald Universidad de la República, Uruguay hwillebald@iecon.ccee.edu.uy Uruguay
  • Cristián Ducoing Lunds Universitet cristian.ducoing@ekh.lu.se Sweden
  • Eoin McLaughlin University of St. Andrews eoin.mclaughlin@st-andrews.ac.uk United Kingdom

Session members

  • Cristián Ducoing, Lund Universitet
  • Eoin McLaughlin, St Andrews University
  • Jean P. Bassino, Ecole Normale Supérieure, Lyon
  • Matthias Blum , Queen’s University Belfast
  • Magnus Lindmark, Umeå University
  • Carolina Román, Universidad de la República
  • Henry Willebald, Universidad de la República
  • Juan Labat, Independent scholar
  • Iñaki Iriarte-Goñi, Universidad de Zaragoza
  • Kyoji Fukao , Hitotsubashi University
  • Osamu Saito , Hitotsubashi University
  • Sevil Acar, Altınbaş University
  • Eli Fenichel, Yale School of Forestry & Environmental Studies
  • Brooks Kaiser , University of Southern Denmark
  • Oxley Les, University of Waikato
  • Qasim Mubashir, University of Waikato

Discussant(s)

Papers

Panel abstract

Over the past quarter-century, Genuine Savings (GS) has emerged as an important indicator of Sustainable Development. It is based on the concept of wealth accounting and represents a measure of how the country’s total capital stock (physical, natural, social, institutional and human) changes year-on-year. Current literature illustrates the nature of these estimates and show how a negative GS indicator can be interpreted as a signal of unsustainable development. What can we learn from history about the sustainable development? We propose a session to discuss on this subject and to offer novel views about the economic history of regions and countries in order to contribute to the current debate about development policies. Studying the long 20th century through the lens of GS enables us to make a broader contribution to the understanding of the economic history of the period and to shed light on the prediction of future well-being.

1st half

Genuine saving and sustainability in a peripheral economy. Uruguay in the long run, 1870-2014

Juan Labat (Independent scholar), Carolina Román (IECON, FCEA, Universidad de la República, Uruguay), Henry Willebald ( IECON, FCEA, Universidad de la República, Uruguay)

We propose novel estimations of the genuine saving GS of a periphery, southern, small and natural-resources abundant economy –Uruguay– in the long run (1870-2014). The evolution of the GS rate (in terms of GNDI) shows a U-shaped long-run evolution. The agro-export model of the 19th century and the initial decades of the 20th century, and the “re-globalization” model prevailing from the 1970s onwards, presented relatively high GS rates in contraposition to the ISI period (prevailing in the mid-20th century). In Latin America, Uruguay has led the ranking of sustainability but its position has been far from that corresponding to the developed countries. In addition, GS rates render interesting insights in terms of un-sustainability. The Uruguayan historiography identifies periods when the agro-export and ISI models would have been exhausted (in the 1920s and in the end of the 1950s, respectively) and our indicator offers negative values that coincides with these dates.

We propose novel estimations of the genuine saving GS of a periphery, southern, small and natural-resources abundant economy –Uruguay– in the long run (1870-2014). The evolution of the GS rate (in terms of GNDI) shows a U-shaped long-run evolution. The agro-export model of the 19th century and the initial decades of the 20th century, and the “re-globalization” model prevailing from the 1970s onwards, presented relatively high GS rates in contraposition to the ISI period (prevailing in the mid-20th century). In Latin America, Uruguay has led the ranking of sustainability but its position has been far from that corresponding to the developed countries. In addition, GS rates render interesting insights in terms of un-sustainability. The Uruguayan historiography identifies periods when the agro-export and ISI models would have been exhausted (in the 1920s and in the end of the 1950s, respectively) and our indicator offers negative values that coincides with these dates.

Economic growth and sustainability in Spain (1950-2000). A first approach to the problem

Iñaki Iriarte-Goñi (Universidad de Zaragoza, Spain)

This paper is a first approach to the problem of (weak) sustainability of Spanish growth during the second half of 20th century, exploring the utility that Genuine Saving estimates could have to this purpose. Spain has been left out of the studies which compare GS in the long run, but the characteristics of its economic growth makes it an interesting study-case. Although Spain is considered between the most developed countries in the world, it was a late-comer to industrialization and only started a lasting convergence process in the second half of the century. The geographical location in south Europe as a Mediterranean country give to its environment peculiar characteristics that have not been studied from the point of view of growth sustainability. Simultaneously, the Spanish case allows an analysis of growth in different institutional contexts, including a long dictatorship, a transition to democracy and an integration process in the EU.

This paper is a first approach to the problem of (weak) sustainability of Spanish growth during the second half of 20th century, exploring the utility that Genuine Saving estimates could have to this purpose. Spain has been left out of the studies which compare GS in the long run, but the characteristics of its economic growth makes it an interesting study-case. Although Spain is considered between the most developed countries in the world, it was a late-comer to industrialization and only started a lasting convergence process in the second half of the century. The geographical location in south Europe as a Mediterranean country give to its environment peculiar characteristics that have not been studied from the point of view of growth sustainability. Simultaneously, the Spanish case allows an analysis of growth in different institutional contexts, including a long dictatorship, a transition to democracy and an integration process in the EU.

Making the most of scarcity? The role of natural assets in pre-WWII Japanese economic development

Jean-Pascal Bassino (Institute of East Asian Studies, ENS Lyon), Kyoji Fukao (Institute of Economic Research, Hitotsubashi University), Osamu Saito (Institute of Economic Research, Hitotsubashi University)

The most relevant indicator of sustainable wellbeing is the comprehensive wealth. In a weak sustainability approach, the consumption of natural capital can be justified if it results in an accumulation of other assets and an increase of the total stock per head. Japanese initial conditions were characterized by an exceptionally efficient use of scarce natural resources, and natural assets played a significant role during the first phase of the shift to modern economic growth in the late 19th century. However, the environmental sustainability of pre-WWII Japanese economic development has not been investigated in a systematic manner. Considering the period 1874-1940, we propose new methods for expanding the coverage of the different types of natural and human assets. We use these series for assessing the contribution of the components of comprehensive wealth to economic growth, and the role of changes in wealth distribution in the rising trend in inequality before WWII.

The most relevant indicator of sustainable wellbeing is the comprehensive wealth. In a weak sustainability approach, the consumption of natural capital can be justified if it results in an accumulation of other assets and an increase of the total stock per head. Japanese initial conditions were characterized by an exceptionally efficient use of scarce natural resources, and natural assets played a significant role during the first phase of the shift to modern economic growth in the late 19th century. However, the environmental sustainability of pre-WWII Japanese economic development has not been investigated in a systematic manner. Considering the period 1874-1940, we propose new methods for expanding the coverage of the different types of natural and human assets. We use these series for assessing the contribution of the components of comprehensive wealth to economic growth, and the role of changes in wealth distribution in the rising trend in inequality before WWII.

Genuine Savings as a Test of New Zealand Weak Sustainability

Mubashir Qasim (University of Waikato), Les Oxley (University of Waikato) and Eoin McLaughlin (University of St. Andrews)

The key aims of this paper are to: i) to extend the World Bank’s (WB) measure of Genuine Savings (GS) for New Zealand by using a longer time-series of data, 1950 – 2015; ii) improve GS estimates for New Zealand by adding additional dimensions to GS i.e. forestry; iii) investigate the relationship between several GS measures and the discounted values of GDP per capita and consumption per capita, used to proxy well-being; iv) test a series of hypotheses which relate GS to the change in future well-being using the framework proposed by (Ferreira, Hamilton, & Vincent, 2008) and v) investigate the effects of a growing population on the availability of future capital stocks by considering the consequences of ‘wealth-dilution’ as defined by Ferreira, et. al., (2008).

The key aims of this paper are to: i) to extend the World Bank’s (WB) measure of Genuine Savings (GS) for New Zealand by using a longer time-series of data, 1950 – 2015; ii) improve GS estimates for New Zealand by adding additional dimensions to GS i.e. forestry; iii) investigate the relationship between several GS measures and the discounted values of GDP per capita and consumption per capita, used to proxy well-being; iv) test a series of hypotheses which relate GS to the change in future well-being using the framework proposed by (Ferreira, Hamilton, & Vincent, 2008) and v) investigate the effects of a growing population on the availability of future capital stocks by considering the consequences of ‘wealth-dilution’ as defined by Ferreira, et. al., (2008).

2nd half

Towards an integrated measure of Sustainability Global Genuine Savings 1870 - 2015

Eoin McLaughlin (Department of Geography and Sustainable Development, University of St. Andrews), Cristián Ducoing (Department of Economic History, Lund University), Matthias Blum (Queen’s University Management School, Queen’s University Belfast)

This article traces the long-run development of Genuine Savings (GS) using a panel of thirteen countries during 140 years. This panel covers a number of developed countries (Great Britain, Germany, Switzerland, France, the US, Australia, New Zealand), a set of resource-abundant countries in Latin America (Argentina, Brazil, Chile, Colombia, Mexico) and an African country (South Africa). They represented 52% of the world’s output by 1950, and include large and small open economies, and resource-rich and -scarce countries, thus allowing us to compare different historical experiences. Components considered are physical and human capital, resource extraction and pollution damages. We find evidence of positive GS over the course of the twentieth century, although the two WW and the Great Depression left considerable marks. We found striking differences between Latin American and developed countries when TFP is included and propose several statistical tests to understand the influence of GS in future (present) wellbeing.

This article traces the long-run development of Genuine Savings (GS) using a panel of thirteen countries during 140 years. This panel covers a number of developed countries (Great Britain, Germany, Switzerland, France, the US, Australia, New Zealand), a set of resource-abundant countries in Latin America (Argentina, Brazil, Chile, Colombia, Mexico) and an African country (South Africa). They represented 52% of the world’s output by 1950, and include large and small open economies, and resource-rich and -scarce countries, thus allowing us to compare different historical experiences. Components considered are physical and human capital, resource extraction and pollution damages. We find evidence of positive GS over the course of the twentieth century, although the two WW and the Great Depression left considerable marks. We found striking differences between Latin American and developed countries when TFP is included and propose several statistical tests to understand the influence of GS in future (present) wellbeing.

Riders on the Storm: How hard did Robert Gordon’s Environmental Headwind blow in the past?

Magnus Lindmark (Department of Geography and Economic History, Umeå University, Umeå, Sweden), Sevil Acar (Department of Economics, Altınbaş University, Istanbul, Turkey - Center for Climate Change and Policy Studies, Boğaziçi University)

The present article explores plausible environmental effects on American wellbeing in a historical perceptive, using quantitative data and a methodological approach which draws from approaches used by environmental economists. This adds one dimension of welfare to Gordon’s discussion with some possible outcomes of relevance for the historical interpretation of American growth. First, it may be hypothesized that the levels of environmental damage rose especially during the prosperous decades following the Second World War, including the spread of motor vehicles, diffusion of air traffic and increased energy consumption. If so, the traditional way of measuring economic progress, GDP, would exaggerate the true development of wellbeing. On the contrary, second, the true progress of the period after 1970 may have been underestimated if environmental damage actually decreased as a consequence of an environmental awakening among producers, consumers and agents creating modern environmental policy.

The present article explores plausible environmental effects on American wellbeing in a historical perceptive, using quantitative data and a methodological approach which draws from approaches used by environmental economists. This adds one dimension of welfare to Gordon’s discussion with some possible outcomes of relevance for the historical interpretation of American growth. First, it may be hypothesized that the levels of environmental damage rose especially during the prosperous decades following the Second World War, including the spread of motor vehicles, diffusion of air traffic and increased energy consumption. If so, the traditional way of measuring economic progress, GDP, would exaggerate the true development of wellbeing. On the contrary, second, the true progress of the period after 1970 may have been underestimated if environmental damage actually decreased as a consequence of an environmental awakening among producers, consumers and agents creating modern environmental policy.

Mis-measuring our past: growth, development, and accounting for nature

Eli Fenichel (Yale School of Forestry & Environmental Studies), Brooks A. Kaiser (University of Southern Denmark - University of Hawaii Economic Research Organization

The ability to measure simultaneously social and economic progress (development) and economic activity (growth) with only one set of accounting technologies waxes and wanes with the gap between the resource flows that fund the economic activity and the standing of the past, present, and future populations who contribute the current assets from which these flows are derived. The gap seems to be widening for natural resources while it may be shrinking for at least some human resources. For natural resources, this widening gap is driving varied efforts to measure ‘the environment’ that fail the mark, particularly by continuing to confound capital assets with resource flows in their valuation efforts. Our approach, built from first-principles, provides a framework applicable across forms of capital by directly incorporating the fluctuations that stem from the ownership rights and management structures of the assets and their myriad flows that evolve with changes in rights structures.

The ability to measure simultaneously social and economic progress (development) and economic activity (growth) with only one set of accounting technologies waxes and wanes with the gap between the resource flows that fund the economic activity and the standing of the past, present, and future populations who contribute the current assets from which these flows are derived. The gap seems to be widening for natural resources while it may be shrinking for at least some human resources. For natural resources, this widening gap is driving varied efforts to measure ‘the environment’ that fail the mark, particularly by continuing to confound capital assets with resource flows in their valuation efforts. Our approach, built from first-principles, provides a framework applicable across forms of capital by directly incorporating the fluctuations that stem from the ownership rights and management structures of the assets and their myriad flows that evolve with changes in rights structures.