Inequality, Resource Depletion, and Welfare Accounting: Applications to Indonesia and Costa Rica

Abstract

Ahluwalia and Chenery noted that the standard measures of GDP growth imply distributional weights that place greater weight on the income of richer income groups, and proposed distribution-neutral and pro-poor alternatives. More recently, pilot studies by the World Resources Institute (WRI) have questioned the sustainability of GDP growth and have introduced natural resource modifications to national income accounting. To date, no studies have undertaken both revisions concurrently, creating a revised measure based on GDP but corrected for both distributional bias and resource depletion. Such a measure is derived in this paper, and its impact illustrated with data from Indonesia and Costa Rica, the countries studied by the WRI.