Productivity Measurement with Natural Capital Nicola Brandt, Paul Schreyer and Vera Zipperer (OECD) Society of Economic Measurement, Paris July 2015

Traditional measures of productivity growth fail to account for natural capital Only labour and produced capital are considered as inputs Incorporating natural capital can give a better understanding of its role for productivity and economic growth Motivation

Significant interest in links between economy and the environment This paper only considers natural resources Links are more extensive: ecosystem services such as sink functions SEEA 2012 Motivation (2)

Framework (1)

Framework (2)

Framework (3)

23 OECD countries, Russia, South Africa Total economy Time period: 1985 – 2008 Output, labour and produced assets: OECD Productivity Database plus Guillen (Mexico) and Voskoboynikov (Russia) Natural assets (oil, gas, coal, metals, minerals): World Bank A key issue: Data

u s = marginal revenue – marginal extraction costs = gross operating surplus attributable to natural resource we (have to) approximate marginal ressource rents by average ressource rent Measured as: market price of resource net of extraction costs (source: World Bank)  strong assumption  low data quality  results illustrative rather than authoritative Particular problem: unit resource rents

Share of resource rent in total costs is modest for many OECD countries But Australia, Canada, Norway, Chile, Mexico, Russia between 4 and 17% Difference between MFP and GMFP modest for many countries Results (1)

GMFP – MFP: percentage point difference in annual average growth,

Norway Difference adjusted and traditional MFP growth But larger variations over time Difference inpercentage points dlnGMFP < dlnMFP during times of relative abundance  dlnZ<dlnS

Also: Set of natural inputs incomplete (missing in particular: land) Difference between MFP and GMFP more pronounced at industry level (see ABS estimates on MFP of Australian mining industry) Results (2)

The role of natural capital for growth UK: natural capital substituted by productivity growth NOR: natural capital substituted by produced capital

Major issues of data availablity and -quality Key point: measuring unit resource rent – Marginal extraction costs – confidentiality issue – Available estimates vary signficantly OECD-World Bank project on measuring natural capital OECD Task Force for implementation of common methodology Data issues: again

Adjustment to productivity is small – but this partly hinges on incomplete data Scope of natural capital can be extended as SEEA data becomes available In particular with industry-level data Studying the role of natural capital over time contributes to tracking sustainability of GDP growth Extension to study the effects of undesired outputs (pollution) on measured productivity (Brandt, Schreyer, Zipperer 2014) Conclusions

Thank you!