Measuring sustainability: Development and application of the Inclusive Wealth Index in China

Abstract

It is increasingly common to use the Inclusive Wealth Index (IWI) to evaluate national sustainability; however, IWI's highly aggregated components and limited regional cases restrict its further application in achieving the Sustainable Development Goals (SDGs). This study extends the traditional three-component IWI framework into six disaggregated components, namely male/female human capital, advanced/ordinary produced capital, and renewable/non-renewable natural capital. We apply the modified framework to China and evaluate the sustainability performance at the provincial level. The results show that China continues to develop with an annual IWI per capita increase rate of 2.3%. Gender inequality is found to hinder the growth of IWI, whereas advanced product features benefit the growth of IWI. The results also suggest significant heterogeneity in provincial IWI primarily due to differences in economic development stages, geographic locations, and uneven IWI growth. IWI growth is largely driven by wealth accumulation resulting from human capital and advanced produced capital. In contrast, insufficient IWI growth is caused by a substantial amount of ordinary produced capital or a continued decline in natural capital. The study provides a basis for tracking progress toward the SDGs and measuring the heterogeneity of regional socio-economic development in China.