Paris | 22 July 2015 Accounting for (inclusive) Wealth: Empirical Evidence By Pablo Munoz United Nations University

2 To measure economic progress, including sustainability issues, from a different perspective that commonly done. GDP/Income, HDI, Better Life Index, GPI. GDP is the most common index used to measure economic performance. - GDP does not account for the depreciation of natural capital. - GDP does not to provide information on whether present growth rates can be sustained in the long run. Background/Purpose of the paper

3 Capital assets are the inter-temporal means of production as well as a direct source of human well-being.

4 Time Capital assets are the inter-temporal means of production as well as a direct source of human well-being.

5 The IWR proposes a switch in analysis from flows to stocks (distinct than GDP) Inclusive Wealth Stocks of capital assets: Produced (PK), Human (HC) and Natural (NC) capital. Wealth = P PK * PK + P HC * HC + P NC * NC Theory states that wealth equals the present value of future consumption. Changes in intergenerational welfare: ΔWealth = P PK * Δ PK + P HC * Δ HC + P NC * Δ NC GDP Flows of goods and services (C j ). GDP = p 1 * C 1 + p 2 * C p n * C n Changes in Welfare ΔGDP = p1 * Δ C1 + p2 * Δ C2

6 Assets accounted for in this study

7 Results Estimates of the index cover 140 countries over the time period between 1990 and 2010.

Where are the sources of nations’ wealth?

Human capital Natural capital Produced capital Average wealth composition across countries (mean )

Where are the sources of nations’ wealth? Produced capital, the most ever capital type measured, represents about 18 percent of the total wealth of nations. The remaining capital types constitute 82% of wealth: 54% in human capital and 28% in natural capital. Human capital Natural capital Produced capital Average wealth composition across countries (mean ) Key message

11 Patterns on the sources of nations’ wealth Key message: the dominance of human capital over the other two capital types tends to be a fair representation of the sample, as this trend holds true for 100 out of the 140 countries evaluated. Human capital

12 Natural capital is the most important asset category in 39 out of the 140 nations. Only in ONE nation Produced Capital was the most important source of wealth – Republic of Moldova. Patterns on the sources of nations’ wealth Human capitalNatural CapitalProduced Capital

13 Percentage of Renewable and Non-Renewable Resources in NC Within the natural capital accounts, renewable resource play the most important role: 74% vs. 26% (average across acountries).

14 Key message We should have an broader view of our sources of wealth, invesment and wellbeing, going ‘beyond produced capital’

15 Changes in Inclusive Wealth

16 Growth in GDP and Wealth (in %) 124 of 140 countries (89%) experienced a positive growth in GDP

of 140 countries (89%) experienced a positive growth in GDP Only 86 of 140 (61%) countries experienced a positive growth in wealth Growth in GDP and Wealth (in %)

18 Percentage changes in worldwide inclusive wealth per capita ( ) GDP up 50% in two decades

19 Percentage changes in worldwide inclusive wealth per capita ( ) NC down 29% HC up 8% PC up 56%

20 IWI only an ‘anemic’ 6% in those years GDP up 50% in two decades Percentage changes in worldwide inclusive wealth per capita ( )

21 Overview of countries: Changes in Natural Capital per capita with respect to the 1990 levels Natural capital per capita increased in only 13 of the 140 ( ~ 10%) countries.

22 Produced capital per capita increased in 116 of the 140 (83%) countries. Overview of countries: Changes in Produced Capital per capita with respect to the 1990 levels

23 Human capital (education) per capita increased in 138 of the 140 (98%) countries, being the foremost contributor to growth rates in inclusive wealth in 101 out of 140 countries. Overview of countries: Changes in Human Capital per capita with respect to the 1990 levels Key message

24 Key message Evidence supports the contention that a broader set of indicators is needed to better understand nations’ economic performance and progress, in order to accommodate sustainability objectives as well as improve well-being in the long run.

25 Methodological Information

26 Author: Dr. Munoz, P. UNU-IHDP

Fossil Fuels and Minerals Sectoral rental rates (%) Avg. International market prices of resource i. Fossil Fuels Oil Natural Gas Coal Minerals Bauxite Copper Gold Iron Lead Nickel Phosphate Silver Tin Zinc Physical stock estimates were based on reserves and production data: Stock t-1 = Stock t + Production t Data Sources: United States Energy Information Administration (EIA); British Geological Survey; United States Geological Survey (USGS); World Bank; BP Statistical Review of World Energy; Narayanan and Walmsley (2008). Rental Price Author: Dr. Munoz, P. UNU-IHDP

NTFB Forest area that is accessed by the population is assumed to be 10 % of the total forest area. Forest Resources: Non-timber Forest Benefits (NTFB) Assuming an infinite time horizon and a discount rate of 5 % Author: Dr. Munoz, P. UNU-IHDP

29 Author: Dr. Munoz, P. UNU-IHDP

Human Capital Framework in the IWR Human capital (HC) is defined as: Term I: HC is a function of educational attainment (“Edu”) and the additional compensation over time of this training, ρ. Where average years of total schooling is used as a proxi of Educational attainment and obteained from Barro and Lee (2010) database. Term I Author: Dr. Munoz, P. UNU-IHDP

Human Capital Framework in the IWR Human capital (HC) is defined as: Term II: Population of the country who reach the years of total education, “P”. Term ITerm II Source:United Nations Population Division (2011); Author: Dr. Munoz, P. UNU-IHDP

Human Capital Framework in the IWR Human capital (HC) is defined as: Term III is obtained by computing the present value of the average labor compensation per unit of human capital, “r”, received by workers over an entire life’s working period, T. Where: r: Conference Board (2012);United Nations Statistics Division (2011a); OECD; National Stadistics Agencies. T: United Nations Population Division (2011); World Health Organization; (2012); International Labour Organization (2011) Term ITerm IITerm III Author: Dr. Munoz, P. UNU-IHDP

33 Author: Dr. Munoz, P. UNU-IHDP

34 We based our calculations on the perpetual inventory method (PIM) by setting an initial capital estimate. PC 1 = Initial capital estimate(K 0) + Invesment 1 - Ko Depreciation Produced Capital (PC) Depreciation rate Investment

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