Going Beyond GDP: Opportunities and Challenges Kevin Mumford Purdue University.

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Presentation transcript:

Going Beyond GDP: Opportunities and Challenges Kevin Mumford Purdue University

National Income Accounting (SNA) Income accounting is narrow – a large amount of economic data is excluded ◦ low demand for the data ◦ data are difficult to collect Income accounting is not sufficient for answering many economic questions ◦ well-being is not equivalent to GDP ◦ growth in GDP does not indicate sustainability

Example: Trinidad and Tobago Two small islands just of the coast of South America in the Caribbean 1.2 million people 8% annual GDP growth (until recently) High level of international business, well- regulated and stable financial system In 2011, the OECD moved Trinidad and Tobago from developing country status to developed country status

GDP per capita, PPP (current international dollars)

GDP may be misleading... 50% of Trinidad and Tobago’s GDP is oil, minerals, and natural gas extraction ◦ 0.2% of world natural gas reserves ◦ 1.3% of world natural gas production The average worker spends 4 hours per day commuting 11.9 Expected years of schooling compared to the average in Latin America and the Caribbean of 13.7

Is the income growth sustainable? Is the income from the extraction of mineral and energy resources being consumed or is it being invested? ◦ Investment (in equipment, machinery, buildings, roads, ports, education, etc.) yields future income ◦ Consumption does not yield future income ◦ Investment includes allowing natural resources (forests, fisheries) to grow

Various Beyond GDP Options Adjustments to GDP ◦ Green GDP, sustainable GDP Social Indicators ◦ Indices of life expectancy, poverty, unemployment, education, HDI Environmental Indicators ◦ Measures of water and air pollution, climate change, forest cover Direct Measures of Happiness

National Wealth Accounting

Example of the Firm Suppose you wanted to evaluate the health of a company to predict future profits Suppose that you only had access to the income statement (annual revenues and expenses) and not the balance sheet (value of all assets and liabilities) How could you distinguish a company that was selling off assets from one that was selling the goods it produced?

Wealth Accounting Challenges Reproducible capital – only investment is measured in the national accounts Natural capital – forest, mineral, and energy stocks are measured; shadow prices are difficult to measure Human Capital – education and wage data is available, but a dollar invested in education does not imply a dollar of additional wealth (productive base) ◦ good health improves productivity, but also directly improves well-being through feeling better and longer life; valuation is unclear

Thank you Kevin J. Mumford Department of Economics Purdue University “Sustainability and the Measurement of Wealth” Environment and Development Economics (2012) 17:3, with Kenneth Arrow, Partha Dasgupta, Lawrence Goulder, and Kirsten Oleson “Measuring Inclusive Wealth at the State Level in the United States” in UNU-IHDP and UNEP (2012) Inclusive Wealth Report Cambridge: Cambridge University Press,