Accounting for non-renewable natural resources in Louisiana's gross state product

Abstract

Current national-income measures are inadequate indicators of sustainable development for natural resource-based economies because they exclude depletion of exhaustible resources. They are two primary methods of including natural resource depletion in national income measures: the depreciation and user cost approach. The depreciation approach values the resource and then subtracts physical depletionmultiplied by this value from the gross domestic product of extractive industries. The user cost approach divides the net receipts of extractive industries into income and user cost components depending on a chosen real interest rate and the expected lifetime of the resource. This study uses both the depreciation and user cost approaches to construct adjusted state production measures for Louisiana (U.S.A.) which include net depletion of oil and gas. Over the 1963–1986 period, the average annual state product was 3.3% lower using the depreciation approach and 13.8% and 8.7% lower using the user cost approaches with 5% and 10% interest rates, respectively.