National Income Accounts Research Articles

Sustainability and Sustainable Development: are These Concepts a Help or a Hindrance to Economics?

The paper provides an overview of concepts of sustainability and sustainable development relevant to economics, discusses ways in which these have altered processes of economic evaluation and considers whether they have been a help or hindrance to economics. At least on the surface, there appears to be widespread support for the desirability of achieving sustainable development. This is reflected in international fora and policy decisions as welt as within Australian, e.g., by the agreement of Australian governments in 1993 to a National Strategy for Ecologically Sustainable Development. Concern about sustainability has led to demands for new forms of social accounting, mainly demands to modify or supplement standard national income accounting by natural resource and environmental accounting. Furthermore, traditional methods of project evaluation and social choice have come under increased scrutiny. It has been suggested that traditional social cost-benefit analysis should be constrained by safe minimum standards and by restrictions to ensure maintenance of natural resource and environmental stocks. While a wide range of modern economic analysis has been influenced by such developments, neoclassical growth theories and their stemming new growth theories show no influence. Despite the optimism of the World Bank, it is still unclear whether continuing global economic growth (on scales which most countries would like to achieve) is compatible with improved environmental quality and a long-term reduction in economic scarcity. Sustainable development and desired levels of economic growth globally could be incompatible.

Integration of environmental concerns into economic analyses of projects and policies in an operational context

The efficient use of natural resources (both mineral and biological), as well as man-made capital and human resources, is a vital prerequisite for economic and social development. One key role of ecological economics is to help value environmental and natural resources more precisely, and internalize the cost and benefits of using such resources into the decision-making process. This paper reviews current economic approaches to the analysis of projects and policies and discusses possibilities for better intergrating environmental concerns into public decision-making. It reviews current practices as they relate to project analysis, the analysis of economic policies, and national income accounting. A major need at present is not for more theory or techniques, but for application of existing methodology and approaches to concrete problems, particularly in developing countries. The major objective should not be to provide fine-turned numbers, but to indicate orders of magnitude. Some project and policy alternatives can be ruled out in this fashion. Also, one can often identify the key estimates to which the decision is sensitive and focus more refined analyses on them. Cost-benefit analysis should be used to the extent possible. Alongside, one needs to consider and, to the extent possible, rigorously analyze consequences and risks that cannot be measured in monetary terms and use, for example, multi-criteria analysis where possible. This, together with sound judgement, are at present the best inputs into decision-making.

Inclusion of Environmental Goods in National Income Accounting

National income statistics take into account the values of market goods and completely ignore the environmental goods. The purpose of this paper is to suggest the integration of environmental goods into the framework of Leontiefs input–output analysis. It is suggested that environmental goods, such as clean air, fresh water, quiet, etc., be treated as sectors in the same way as market goods sectors. The final deliveries of the sectors may be positive, zero or negative, depending on the scarcity of the environ mental goods and political decisions. The paper gives a numerical illustration of how the environmental goods can be valued from an input–output analysis. It is recommended that a system should be devised to adjust the national income estimators of individual countries for the changes in the environmental goods caused by the economic activities of these countries.

Natural resources, national accounting, and economic depreciation: Stock effects

Hartwick's analysis of incorporating resource depletion in standard national income accounting is extended to the consideration of stock effects under both certainty and uncertainty.

SAVING MEASURES AS ECONOMIC GROWTH INDICATORS

The decline of the U.S. saving rate during the 1980s and its potential impact on future economic growth has been the subject of considerable concern. The National Income Accounts (NIA) measures of saving are the empirical basis for the concern. However, the economics literature has soundly criticized the NIA concepts of saving and investment. Moreover, little evidence exists that the United States suffered a capital shortage during the 1980s, when it enjoyed its second longest peacetime economic expansion. This paper examines the relation of NIA and other saving measures to future real GDP. Findings indicate that no measurable relation exists between the lagged NIA saving measures and real GDP. However, findings also indicate a significant relation does exist between real GDP and the sum of personal saving from the flow‐of‐funds accounts plus an approximation of government saving for infrastructure purposes. Unlike the NIA saving rate, this constructed saving rate did not decline precipitously in the 1980s. Since the saving rate relevant to economic growth did not fall, the future of the U.S. economy might not be nearly so bleak as many assume.

Aggregate Consumption and Saving in the Postwar United States

Two commonly used sources of aggregate expenditure data are personal consumption expenditures in the National Income and Product Accounts and the Consumer Expenditure Surveys administered by the Bureau of Labor Statistics. We adjust both data sources to incorporate the service flows from owner-occupied housing and other consumer durables. A comparison of the two estimates of aggregate expenditure reveals that the differences between the two data sets have been growing over time. By 1989 the level of aggregate expenditure in the national accounts exceeds that reported in the Consumer Expenditure Surveys by $1224 billions. Less than half of this difference can be attributed to definitional differences in the two data sources.

Earth in the Balance Sheet: Incorporating Natural Resources in National Income Accounts

Earth in the Balance Sheet: Incorporating Natural Resources in National Income Accounts

Alternative economic indicators

1. The Growth Debate 2. The Origins of National Income Accounting 3. Problems of National Income Accounting 4. Possible Reforms in National Income Accounting 5. Growth and Progress 6. The Good Indicator 7. Social Indicators 8. Environmental Indicators 9. Data for Fourteen Major Countries.

Household Work and National Income Accounting: to Include or not to Include?

To a large extent household work research to date has concentrated on solving conceptual, theoretical and methodological problems with regard to its measurement and valuation, providing empirical estimates on country studies on the magnitude of household production, and on household production modelling. While no doubt many of these efforts are useful and praiseworthy, there remains a question neglected or crucially unanswered: should household work be included or excluded from the measurement of national income? This question is important for unless it is answered, the estimates generated as in country studies would be meaningless. The purpose of this paper is to synthesize all arguments for and against its inclusion especially in view of recent renewed interests in the household production literature and to suggest a criterion.

WEALTH AND CONSUMER HORIZON: EVIDENCE FROM A DEVELOPING ECONOMY

This paper presents new evidence on the length of consumer horizon, which represents an important aspect of the Permanent Income Hypothesis. It uses data on private wealth of India for 1949-50 to 1974-75. Time varying parameter estimation is used to derive annual values of consumer discount rate and horizon. The findings support Friedman's view that is approximately three years long. The author discusses the plausibility of his findings. Two types of tests have appeared in the literature to examine the validity of the Permanent Income Hypothesis (PIH). The first type of tests has addressed the relevance of the strict version of the PIH, viz., that the permanent consumption is proportional to permanent income and that the marginal propensity to consume out of transitory income is close to zero. The second type of tests has examined the length of the consumer to see if it was longer than one year and thus the policy implications of the PIH were indeed different from the ones derived from the Keynesion type Absolute Income Hypothesis. Since the PIH has exciting policy implications for the savings efforts in underdeveloped countries several attempts have been made to understand the relevance of this theory in the context of underdeveloped countries. However, most of the studies thus far have been confined to the first type of tests. As yet no suitable attempt appears to have been made to calculate the length of the consumer to see if it is equal to or longer than one year. At the very outset it may be noted that the term horizon in the PIH has a quite different meaning from what it usually does. As it has generally been used horizon implies a cutting off point-that a consumer does not look beyond, say, three years if that is the length of his horizon. In other words, in the usual parlance implies a planning period. However, in relation to the PIH (Friedman, 1958, 1963) it means that it is the dividing line between effects he (consumer) considers transitory and those he considers permanent; that he will not adjust his consumption pattern to actual or possible changes in circumstances except as these can be expected to affect his consumption possibilities for a period longer than three years; and hence he definitely does look beyond three Note: I am grateful to Moses Abramovitz for several helpful comments on an earlier version of this paper. I am also thankful to a referee of this journal and the Managing Editor for many useful comments. To Mr. Jagdish Kumar, former Director of National Income Accounts at the Central Statistical Organization in New Delhi, I owe a special debt for his help in collecting data for reproducible tangible wealth of India. I am also thankful to Ela Trivedi for computations reported here.

User cost in oil production

The assumption of an initial fixed mineral stock is superfluous and wrong. User cost (resource rent) in mineral production is the present value of expected increases in development cost. It can be measured as the difference between in-ground market value and development cost, or estimated approximately from current development cost. For private or national-income accounting, mineral reserves should be treated as a renewable inventory. Adjustment for change in inventory may increase or decrease the income of a mineral producer, but an increase is more likely.

Accounting for the impact of agriculture and forestry on environmental quality

A framework for modifying sectoral accounts for environmental externalities is assembled as a basis for estimating the National Income Accounts for U.K. agriculture and forestry. Valuation of positive and negative environmental impacts draws on revealed and expressed preference evaluations. The approach taken seeks to modify the national accounts for agriculture and forestry by first assessing the physical significance of the relevant externalities (in terms of land use designations and physical pollutants) and then valuing them using existing studies.

Book Reviews

Book reviewed in this articles: Fiscal Systems and Practices in ASEAN: Trends, Impacts and Evaluation. Edited by Mukul G. Asher. Asian development Asian Development Outlook 1990. Edited by the Asian Development Bank Reforms in China China and the Open Door Policy. By Kevin Bucknall Complexities of Indonesian integration National Integration in Indonesia: Patterns and Policies. By Christine Drake TNCs from developing Asian countries Transnational Corporations from Developing Asian Economies. Perspectives of competitiveness Trade Policies for International Competitiveness. By Robert C. Feenstra. Friedman's lecture tour Friedman in China. By Milton Friedman. Comparing economic performance Perspectives on the Pacific Basin Economy: A Comparison of Asia and Latin America. Edited by Takao Fukuchi and Mitsuhiro Kagami Success of NICs in East Asia Pathways from the Periphery, the Politics of Growth in the Newly Industrializing Countries. By Stephan Haggard. Effectiveness of price stabilization Commodity Price Stabilization in Papua New Guinea. By L. Jolly, A. Beck and P. Bodman. China's urban development Chinese Urban Reform: What Model Now? Edited by R. Yin‐Wang Kwok, William L. Parish, Anthony Gar‐on Yeh and Xu Xueqiang. Economics and environmentalism Market Environmentalism: Lessons for Hong Kong. By Jo Ann Kwong Economics and environmentalism After the Green Revolution: Sustainable Agriculture for Development. By Gordon R. Conway and Edward B. Barbier. Economics and environmentalism Sustainable Development: Economics and Environment in the Third World. By David Pearce, Edward Barbier and Anil Markandya. Economics and environmentalism Wasting Assets: Natural Resources in the National Income Accounts. By Robert Repetto, William Magrath, Michael Wells, Christine Beer and Fabrizio Rossini Taiwan's financial system Money and Finance in the Economic Development of Taiwan. By Lee Sheng‐Yi. Key oil‐related issues The Oil Markets of the Pacific Rim: Into the 1990s. By Paul McDonald. Indonesian economic history Economic Growth in Indonesia, 1820–1940. Edited by Angus Maddison and Ge Prince. Festschrift Economic Development in East and Southeast Asia: Essays in Honour of Professor Shinichi Ichimura. Edited by Seiji Naya and Akira Takayama Japanese investment in ASEAN The New Wave of Japanese Investment in ASEAN. By Pasuk Phongpaichit Macroeconomic adjustment in Asia Beyond Adjustment – The Asian Experience. Edited by Paul Streeten. Recent industrial development Strategies for Industrial Development: Concept and Policy Issues. Edited by Suh Jang‐Won. Vietnamese economy Vietnam's Economic Policy since 1975. By Vo Nhan Tri. Vietnamese economy Doi Moi: Economic Reforms and Development Policies in Vietnam. Edited by Per Ronnas and Orjan Sjoberg. Chinese economy China: Macroeconomic Stability and Industrial Growth under Decentralized Socialism. Chinese economy China: Revenue Mobilization and Tax Policy.

Direct Estimation of Entropy and Revisions to the National Income Accounts

Direct Estimation of Entropy and Revisions to the National Income Accounts

Governing by numbers: Figuring out democracy

This review essay considers the relations between quantification and democratic government. Previous studies have demonstrated that the relation between numbers and politics is mutually constitutive: the exercise of politics depends upon numbers; acts of social quantification are politicized; our images of political life are shaped by the realities that statistics appear to disclose. The essay explores the specific links between democracy, as a mentality of government and a technology of rule, and quantification, numeracy and statistics. It argues that democratic power is calculated power, calculating power and requiring citizens who calculate about power. The essay considers the links between the promulgation of numeracy in eighteenth-century U.S. and programmes to produce a certain type of disciplined subjectivity in citizens. Some aspects of the history of the census are examined to demonstrate the ways in which the exercise of democratic government in the nineteenth century came to be seen as dependent upon statistical knowledge and the role that the census had in “making up” the polity of a democratic nation. It examines the case of National Income Accounting in the context of an argument that there is an intrinsic relation between political problematizations and attempts to make them calculate through numerical technologies. And it considers the ways in which neo-liberal mentalities of government depend upon the existence of a public habitat of numbers, upon a population of actors who calculate and upon an expertise of number. Democracy, in its modern mass liberal forms, requires numerate and calculating citizens, numericized civic discourse and a numericized programmatics of government.

Measures of Savings as Indicators of Economic Growth

This paper contends that National Income Accounts (NIA) saving rates have been sending out misleading signals about the U.S. economy in the 1980s. The individuals' saving rate from the flow-of-funds accounts (FFA) is shown to be a much better indicator of resources available for future economic growth.

Book reviews

Book reviewed in this article:Rainforests for the future: NO TIMBER WITHOUT TREES: Sustainability in the Tropical Forest by Duncan Poore, Peter Burgess, John Palmer, Simon Rietbergen and Timothy SinottDetermining the cut‐off grade: THE ECONOMIC DEFINITION OF ORE: Cut‐off Grades in Theory and Practice by Kenneth F. LaneThe nex decade for mining: PROSPECTS FOR MINERALS IN THE 90s edited by Peter R. Richardson and Renka GesingAccounting for the future: WASTING ASSETS: Natural Resources in the National Income Accounts by Robert Repetto, William Magrath, Michael Wells, Christine Beer and Fabrizio RossiniMissed opportunities: THE PURPOSE OF FORESTS: Follies of Development by Jack Westoby

The Environment and Emerging Development Issues

Development economics for the most part has failed to recognize renewable environmental resources as economic goods. Yet the lives of the poor in developing countries are intimately tied to the fate of their local common-property resources - soil, fuel-wood, water, and so on. Ignoring the loss of common-property renewable resources (via degradation, centralization, or privatization) in calculations of net national product can mask the destruction of resources available to a country's poor behind the false appearance of a growing national economy. This paper describes the difference between the problem of managing local common-property resources in developing countries and the problem of protecting the global commons such as the atmosphere and oceans. It outlines the calculations that would include the local commons in the national income accounting of capital assets and argues that the interests of those most dependent on the increasingly scarce local commons will be best served by placing control in their hands, while the central government provides infrastructure and educational support. To control the pollution of the global commons, on the other hand, the paper sketches a plan in which most countries would have a high incentive to participate - a global allocation of limited, tradable permits to discharge defined pollutants.

Measuring Environmental Impact

Book reviewed in this article:Economic Analysis of the Environmental Impacts of Development Projects. By John A. Dixon, Richard A. Carpenter, Louise A. Fallon, Paul B. Sherman and Supachit ManipomokeThe Jonglei Canal: Impact and Opportunity. Edited by Paul Howell, Michael Lock and Stephen CobbWasting Assets: Natural Resources in the National Income Accounts. By Robert Repetto, William Magrath, Michael Wells, Christine Beer and Fabrizio Rossini

Exchange rates, tax-subsidy schemes, and the revenue from foreign trade in a centrally planned economy

It has been argued that while in the traditional analysis of the classic CPE the exchange rate has only an accounting function, inappropriate methods of national income accounting can lead to changes in the exchange rate generating changes in the real economy, provided that trade in unbalanced in foreign currency prices. This thesis was explored by examining the way the profits from foreign trade were calculated by the Ministry of Foreign Trade, and then transferred to the state budget. It was shown that the correct measure of the state's increased command over domestic resources from engaging in foreign trade, derived from the implicit taxes on that sector, was the ministry's profits on its domestic operations, the first term in (2). However, evidence was presented which suggested that its profits on foreign currency account measured in domestic currency, the second term in (2), were also passed over to the state budget. This implies that transferred profits from foreign trade will overstate the underlying command over resources when there is a balance of payments surplus, and understate them when there is a deficit. The consequence of this is that the domestic economy faces a series of erratic, though small, inflationary and deflationary impulses, regardless of changes in the exchange rate. The theoretical role of the preisausleich system was explored in some detail and it was argued that, although the system has been designed to insulate the domestic economy from external disturbances, there were clear reasons why it had come to play a major part in revenue raising. Specifically, it is administratively convenient to tax resources at their point of entry into or exit from the economy; the taxation of foreign trade widens the tax base and reduces the visibility of the tax system. But, of course, this grafting onto the preisausgleich of a second major function of revenue raising does lead to the development of a further channel through which external disturbances can pass into the domestic economy. That is external disturbances impact on the domestic economy not only through the production and welfare effects of changing exports and imports, and through whatever tenuous links are allowed between foreign and domestic prices, but also insofar as those disturbances affect the ministry's profits from foreign trade. In short, foreign economic disturbances show up in variations in the position of the non-inflationary government budget constraint. To that extent the second function of the preisausgleich impairs its ability to perform its original insulation function. In a minor way, the successful non-inflationary performance of the insulation function has always required adjustments in the government budget constraint. But the growth in the importance of foreign trade taxation has magnified the importance of this phenomenon, and led to a trade-off between the two functions.