Genuine Savings Research Articles

Assessment of the Economic, Social and Environmental Dimensions of the Indicators for Sustainable Development

AbstractNine different indices for measuring sustainable development, comprising Change in Wealth Index (CWI), Ecological Footprint (EF), Environmental Performance Index (EPI), Environmental Sustainability Index (ESI), Genuine Savings Index (GSI), Global Well‐Being Index (GWI), Happy Planet Index (HPI), Human Development Index (HDI) and Sustainable Society Index (SSI) were selected in this study. The indices were analysed for their ability to measure the economic, environmental and social dimensions of sustainable development. Only two indices (SSI and GSI) considered all three dimensions of sustainable development, while the remaining measured either the socio‐economic, socio‐environmental or just economic and environmental dimensions. A normalized average sustainability index (NASI) was proposed in this study, calculated as an average index of all nine. Switzerland, Norway and Sweden were the countries with the highest, while Burundi, Sierra Leone and Niger were the countries with the lowest NASI scores. The deviation of each index compared with NASI was determined, resulting in GWI followed by HDI having the lowest deviation from the average rankings. The publication contribution of the scientific literature towards the three dimensions of sustainable development for each individual index was further analysed and discussed, identifying public health as one of the potential overarching indicators for sustainable development. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment

Erratum to: Assessing future sustainability by forecast of Genuine Savings paths

Erratum to: Assessing future sustainability by forecast of Genuine Savings paths

Resource curse contagion in the case of Yemen

This study analyses the economic developments in Yemen from the 1970s to today in the context of the resource curse hypothesis. After a brief survey of the resource curse literature, using empirical data, historical accounts, and political (economic) analyses, I confirm that post-reunification Yemen suffers from an intense oil curse. The curse is evidenced by low genuine savings rates, oil-dependency, a stagnating economy, and institutional failure. However, this study finds that the institutional failure which caused this is itself a product of the resource-curse-like developments following migrant worker remittances from Saudi Arabia in the 1970s and 1980s. Moreover, the current instability in Yemen has its origins in rent-seeking defections in the corrupt governing patronage network due to sudden anticipations of oil exhaustion. The analysis suggests that worker migration is able to transmit resource curse symptoms to other economies, which makes them also more vulnerable to future resource curse triggers, and that declining resource reserves increase political instability of countries with strong patronage networks.

Strong or weak sustainability: A case study of emerging Asia

Sustainability can be weak or strong, depending on the nature of capital accumulation. Weak sustainability is characterized by a non-declining combined stock of capital and assumes that man-made capital can be replaced with natural capital. Strong sustainability, on the other hand, implies that natural capital cannot be replaced by any other capital. Based on this understanding, the present study analysed the growth patterns of 10 emerging Asian economies using time-series data over a 20-year period. For this purpose, the study used genuine savings as an indicator of weak sustainability and ecological footprint as an indicator of strong sustainability. The study found that the selected Asain economies, particularly the middle-income countries, are following a path of weak sustainability. While the high-income countries are gradually making an attempt, through various policy interventions, to move from a path of weak to strong sustainability, despite genuine savings having stabilized their ecological footprint per capita continues to show an increasing trend.

Sustainability of an Economy Relying on Two Reproducible Assets

Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.

Sustainable Development of Krasnoyarsk Krai: New Estimates

In this paper we introduce the updated estimates of Genuine Savings and Green GRP and give an overview of complex estimation of sustainable development level of Krasnoyarsk Krai. For indicators specifying environmental damage we considered depletion of natural resources and the damage caused by emission of pollutants into the environment. Dynamics of both indicators has been found negative: the tendency of Krasnoyarsk Krai development is still unsustainable. This trend is kept since the mid of 2000s, when the previous estimation of the Genuine Savings and Green GRP was made. The above-stated results correspond to the estimation of Genuine Progress Indicator in 2005–2011 accurate within the accounting of social sphere indicators of sustainable development.

SAVINGS AND WEALTH ACCUMULATION: MEASUREMENT, INFLUENCES AND INSTITUTIONS

AbstractSavings and wealth accumulation are important dimensions of policy and research debates. This special issue comprises a collection of survey articles on topical issues ranging from the effects of access to credit, the rise of Islamic finance and sovereign wealth funds, the measurement of wealth inequality and genuine savings, the distribution of wealth across generations and retirement savings.

Empirical Testing of Genuine Savings as an Indicator of Weak Sustainability: A Three-Country Analysis of Long-Run Trends

Genuine Savings has emerged as a widely-used indicator of sustainable development. This approach to conceptualising what sustainability is about has strong links to work published by Anil Markandya and colleagues over 20 years ago. In this paper, we use long-term data stretching back to 1870 to undertake empirical tests of the relationship between Genuine Savings (GS) and future well-being for three countries: Britain, the USA and Germany. Our tests are based on an underlying theoretical relationship between GS and changes in the present value of future consumption. Based on both single country and panel results, we find evidence supporting the existence of a cointegrating (long run equilibrium) relationship between GS and future well-being, and fail to reject the basic theoretical result on the relationship between these two macroeconomic variables. This provides some support for the GS measure of weak sustainability.

Measuring Tools for Quantifying Sustainable Development

This work reviews the tools and methods used for quantifying sustainable development. The paper first reviews categorization of the tools based on weak and strong sustainability. It then provides critical review of the UN review of sustainability indicators and the methods for calculating the indicators, which include the environmental footprint, capital approach to measuring sustainable development, green national net product, genuine savings, genuine progress indicator, indicator of sustainable economic welfare and human development indicator on sustainable development. The benefits of standardizing the assessment tools for sustainable development would be seen through well directed policy leading to a balance between economy, environment and society where none is compromised to achieve greater results in the other. However, there is still no single method of assessing the sustainability of development that is widely accepted as suitable and all methods developed have inadequacies that prevent a true measure of sustainable development from being determined. Keywords: Sustainability indicators, environmental footprint, genuine savings, sustainable economic welfare, human development indicator.

The Zambian Resource Curse and its influence on Genuine Savings as an indicator for “weak” sustainable development

The empirical evidence that economies predominantly reliant on their natural resources are characterized by slower economic growth—the so-called Resource Curse (RC)—is in many ways confirmed by the case of Zambia. Haber and Menaldo (Am Polit Sci Rev 105(1):1–26, 2011) identify Zambia’s extreme dependence on copper exports as one of the worldwide most striking examples for a country suffering from this “curse.” In topical literature, the RC is traced back to the generation of natural resource rents regardless of economic performance, which among other problems leads to suboptimal reinvestment. The World Banks indicator for the “weak” sustainable development of a country—the so-called Genuine Savings (GS)—considers exactly this reinvestment of rents from the depletion of natural capital rents into physical or human capital. Although it has been shown empirically that countries dependent on primary exports on average feature negative GS rates and that the determinants of the RC influence both present economic growth and future sustainability as measured by GS, no case studies have been conducted to confirm this. Against this background, we qualitatively survey the relationship between the most discussed determinants causing the RC in Zambia and the country’s GS rate. We show that all theoretical relationships between the GS rates of a country and RC determinants such as consumption behavior, volatile world market prices, the so-called Dutch disease as well as political and institutional structures apply to Zambia between 1964 and 2010: an extreme dependency on copper exports and insufficient reinvestments of income from the depletion of Zambia’s natural capital constitutes one of the main reasons for slow growth and negative GS until the copper price booms in the second half of the 2000s.

Genuine Savings as an Indicator for “Weak” Sustainability: Critical Survey and Possible Ways forward in Practical Measuring

Published by the World Bank (as “Adjusted Net Savings”) for around 160 countries, Genuine Savings (GS) presents the most respected but also the most debated indicator for “weak” sustainability. It originates from the so-called “Hartwick rule” for the re-investment of rents from the depletion of natural in reproducible forms of capital. Coming from the theoretical reasoning behind GS, this paper discusses possible extensions either not yet discussed or underrepresented in current research. Mainly, I suggest a discussion of additional items that could be included in GS and show that both the global average and individual country levels of GS would change immensely by including these recommendations.

Sustainability in Asian Countries: Perspectives from Economics

Studies on sustainable development rely on diverse and seemingly conflicting concepts that yield contrasting results. The root of these conflicting concepts is the lack of agreement on the path toward achieving sustainable development (SD), namely, weak (or economic) versus strong (or ecological) sustainability. This article revisits the Solow-Hartwick model (Solow 1974, 1986; Hartwick 1977, 1978a, 1978b), which suggests that an economy can achieve intergenerational equity by mandating the Hartwick rule of investing the amount of rents from natural capital into renewable capital. It constructs a modified Solow-Hartwick model in which the assumptions of constant population and no technological progress are relaxed and from which it derives a more general form of the Hartwick rule. The modified Solow-Hartwick investment rule presents how weak sustainability can be attained and explains how the residual Hotelling rents (or proceeds from natural resources) could be utilized in order to achieve strong sustainability. In this article, we apply the modified Solow-Hartwick investment rule to a selection of developing and developed Asian economies to assess their sustainability. We then compare our results with two existing measures of sustainability, the genuine savings (GS) model and the Environmental Sustainability Index (ESI), both of which frequently present contradicting evaluations on the status of sustainability.

L’évaluation économique du patrimoine urbain et ses enjeux : une approche par la soutenabilité

Préciser la valeur économique d’un patrimoine urbain multidimensionnel soumis à des projets de mise en valeur constitue un enjeu primordial, notamment dans les pays en développement où les difficultés d’accès à des données essentielles constituent très souvent un frein à cette évaluation. Proposant ici une grille d’analyse à visée opérationnelle cherchant à dépasser les limites des outils standards de l’analyse économique souvent incapables de cerner la valeur économique totale d’un patrimoine, notre méthodologie repose sur la notion de soutenabilité « faible » ou « forte ». Un « diagramme de soutenabilité » permet alors de confronter flux d’investissement et de dégradation dans quatre dimensions clairement identifiées, utilisant différents indicateurs, monétaires ou non. Il met en évidence l’évolution possible de la soutenabilité du patrimoine urbain de l’île Saint-Louis du Sénégal en face de projets de réhabilitation ou de rénovation, en introduisant des effets de seuil et de risques de non-soutenabilité.

On sustainability and social welfare

This paper proposes to define sustainability in terms of leaving it possible for future generations to sustain certain defined targets. It is shown that variants of genuine savings and the ecological footprint can then serve as indicators of sustainability. The link between sustainability and intergenerational welfare is examined, and it is shown how to incorporate indicators of sustainability into a social welfare measure, including risk in the analysis.

Methodological approaches to accounting the depletion of natural resources, changes in the environmental and human capital in the gross regional product

A key indicator of the System of National Accounts of Russia at a regional scale is Gross Regional Product characterizing the value of goods and services produced in all sectors of the economy in a country and intended for final consumption, capital formation and net exports (excluding imports). From a sustainability perspective, the most weakness of GRP is that it ignores depreciation of man-made assets, natural resource depletion, environmental pollution and degradation, and potential social costs such as poorer health due to exposure to occupational hazards. Several types of alternative approaches to measuring socio-economic progress are considering for six administrative units of the Ural Federal District for the period 2006-2014. Proposed alternatives to GRP as a measure of social progress are focused on natural resource depletion, environmental externalities and some human development aspects. The most promising is the use of corrected macroeconomic indicators similar to the “genuine savings†compiled by the World Bank. Genuine savings are defined in this paper as net savings (net gross savings minus consumption of fixed capital) minus the consumption of natural non-renewable resources and the monetary evaluations of damages resulting from air pollution, water pollution and waste disposal. Two main groups of non renewable resources are considered: energy resources (uranium ore, oil and natural gas) and mineral resources (iron ore, copper, and aluminum). In spite of various shortcomings, this indicator represents a considerable improvement over GRP information. For example, while GRP demonstrates steady growth between 2006 and 2014 for the main Russian oil- and gas-producing regions – Hanty-Mansi and Yamalo-Nenets Autonomous Okrugs, genuine savings for these regions decreased over all period. It means that their resource-based economy could not be considered as being on a sustainable path even in the framework of “weak†sustainability, i.e. sustainability under the assumption that the accumulation of producible physical capital and of human capital can compensate for losses in natural non reproducible resources.

Methodological Approaches for Estimating Gross Regional Product after Taking into Account Depletion of Natural Resources, Environmental Pollution and Human Capital Aspects

A key indicator of the System of National Accounts of Russia at a regional scale is Gross Regional Product characterizing the value of goods and services produced in all sectors of the economy in a country and intended for final consumption, capital formation and net exports (excluding imports). From a sustainability perspective, the most weakness of GRP is that it ignores depreciation of man-made assets, natural resource depletion, environmental pollution and degradation, and potential social costs such as poorer health due to exposure to occupational hazards. Several types of alternative approaches to measuring socio-economic progress are considering for six administrative units of the Ural Federal District for the period 2006–2014. Proposed alternatives to GRP as a measure of social progress are focused on natural resource depletion, environmental externalities and some human development aspects. The most promising is the use of corrected macroeconomic indicators similar to the “genuine savings†compiled by the World Bank. Genuine savings are defined in this paper as net savings (net gross savings minus consumption of fixed capital) minus the consumption of natural non-renewable resources and the monetary evaluations of damages resulting from air pollution, water pollution and waste disposal. Two main groups of non renewable resources are considered: energy resources (uranium ore, oil and natural gas) and mineral resources (iron ore, copper, and aluminum). In spite of various shortcomings, this indicator represents a considerable improvement over GRP information. For example, while GRP demonstrates steady growth between 2006 and 2014 for the main Russian oil- and gas-producing regions — Hanty-Mansi and Yamalo-Nenets Autonomous Okrugs, genuine savings for these regions decreased over all period. It means that their resource-based economy could not be considered as being on a sustainable path even in the framework of “weak†sustainability, i.e. sustainability under the assumption that the accumulation of producible physical capital and of human capital can compensate for losses in natural non reproducible resources.

Counting carbon: historic emissions from fossil fuels, long-run measures of sustainable development and carbon debt

This article examines how to account for the welfare effects of carbon dioxide emissions, using the historical experiences of Britain and the USA from the onset of the industrial revolution to the present. While a single country might isolate itself from the detrimental effects of global warming in the short run, in the long all countries are unable to free ride. Thus, we support the use of a single global price for carbon dioxide emissions. The calculated price should decrease as we move back in time to take into account that carbon dioxide is a stock pollutant, and that one unit added to the present large stock is likely to cause more damage than a unit emitted under the lower concentration levels in the past. We incorporate the annual costs of British and US carbon emissions into genuine savings, and calculate the accumulated costs of their carbon dioxide emissions. Enlarging the scope and calculating the cumulative cost of carbon dioxide from the four largest emitters gives new insights into the question of who is responsible for climate change.

An environmental-economic measure of sustainable development

A central issue in the study of sustainable development is the interplay of growth and sacrifice in a dynamic economy. This paper investigates the relationship among current consumption, sacrifice and sustainability improvement in a general context and in two canonical, stylized economies. We argue that the maximin value of utility measures what is sustainable and provides the limit to growth. Maximin value is interpreted as a dynamic environmental-economic carrying capacity and current utility as an environmental-economic footprint. The time derivative of maximin value is interpreted as net investment in sustainability improvement. It is called durable savings to distinguish it from genuine savings, usually computed with discounted-utilitarian prices.

Testing genuine savings as a forward-looking indicator of future well-being over the (very) long-run

Genuine Savings (GS) have been much used in recent years as an indicator of a country's sustainability. According to some theorists (e.g. Arrow et al., 2012), under certain conditions a country with a positive level of GS should experience non-declining future utility, given the assumption of unlimited substitutability among all forms of capital (sometimes called “weak” sustainability). This paper reports the first very long-run tests of GS (also called comprehensive investment or adjusted net savings) as a forward-looking indicator of future well-being. We assemble data for British capital back to 1765, and construct several net investment measures which are used as indicators of two alternative measures of future well-being: consumption per capita and real wages. An allowance for a “value of time” due to exogenous technological progress is included in some GS measures, and we demonstrate the importance of this measure and the choice of discount rate over the very long-run. On the whole, our results do not reject the postulated relationship between GS and future well-being, and show GS can be a forward looking indicator of future well-being for periods of up to 100 years.

A study on forecasting paths of genuine savings and wealth without and with carbon dioxide constraints: development of shadow price functions

This paper has developed a method for forecasting the future paths of genuine savings (GS) with and without carbon dioxide (CO2) emissions constraints. GS calculations require shadow prices, which can be endogenously determined for variables and constraints in a model. However, in case of a ‘business as usual’ model (BAU), the shadow prices required for calculating GS without constraints show theoretically zero. This research derives the shadow prices required to measure GS for the BAU case as a function of several variables available in the optimal (economically efficient) case. This function is estimated from endogenously obtained variables from a model with environmental constraints. Subsequently, this function is used to calculate shadow prices with and without CO2 constraints, which are further employed to compute future paths of GS according to two methods applied in the papers by Arrow et al. We successfully estimated GS (or GSnt; GS with changes in population and technology) under the BAU case, however, suggest that GS (or GSnt) measures depend, to a great extent, on the time span under consideration (truncation year) for wealth accounting and the accounting methods by Arrows’ papers used for its estimation. In some cases, especially according to the methodology used by Arrow’s paper in 2004 using adjusted consumption in wealth accounting, the sign of GS (or GSnt) changes from negative to positive when changes in total factor productivity are taken into consideration. These aspects should be explored before measuring (un)sustainability of a particular path based on the GS (or GSnt) indicator.