Environment and Development Economics

Symposium: Sustainability and the measurement of wealth

Sustainability and the measurement of wealth

Kenneth J. Arrowa1, Partha Dasguptaa2, Lawrence H. Gouldera3, Kevin J. Mumforda4 and Kirsten Olesona5

a1 Department of Economics, Stanford University, USA. Email: arrow@stanford.edu

a2 Department of Economics, University of Cambridge, UK. Email: pd10000@cam.ac.uk

a3 Department of Economics, Stanford University, Stanford, CA 94305, USA. Email: goulder@stanford.edu

a4 Department of Economics, Purdue University, USA. Email: mumford@purdue.edu

a5 Department of Natural Resources and Environmental Management, University of Hawaii, USA. Email: koleson@hawaii.edu

Abstract

We develop and apply a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining wellbeing over time. Our approach differs from earlier approaches by concentrating on wealth rather than income. Sustainability is demonstrated by showing that a properly defined comprehensive measure of wealth is maintained through time. Our wealth measure is unusually comprehensive, capturing not only reproducible and human capital but also natural capital, health improvements and technological change. We apply the framework to five countries: the United States, China, Brazil, India and Venezuela. We show that the often-neglected contributors to wealth – technological change, natural capital and health capital – fundamentally affect the conclusions one draws about whether given nations are achieving sustainability. Indeed, even countries that display sustainability differ considerably in the kinds of capital that contribute to it.

(Online publication May 08 2012)

Footnotes

The authors are most grateful to Kirk Hamilton and his colleagues at The World Bank for very helpful comments and for making their data available to them.