Where is the Wealth of Nations? Measuring capital for the 21 st century The World Bank March 2006

Why measure wealth? A useful model: Development as portfolio management A useful model: Development as portfolio management What is the composition of the portfolio? What is the composition of the portfolio? How efficiently is each element of the portfolio being managed? How efficiently is each element of the portfolio being managed? How rapidly is wealth being accumulated? How rapidly is wealth being accumulated?

Elements of the portfolio Produced capital Produced capital Natural resources (minerals, forests, land) Natural resources (minerals, forests, land) Intangible capital Intangible capital Human capital Human capital Institutions / governance Institutions / governance

Wealth estimates

Factors explaining intangible capital These three factors explain 90% of the variation in intangible capital across countries

Measuring wealth

Where is the wealth of Kenya? ($/capita)

Where is the wealth of Finland? ($/capita)

What is incompletely measured? Fish, diamonds (lack of data) Fish, diamonds (lack of data) Water – partially measured in other asset values and in total wealth Water – partially measured in other asset values and in total wealth Environmental services (e.g. watershed regulation) – mostly measured in other asset values, but not explicitly Environmental services (e.g. watershed regulation) – mostly measured in other asset values, but not explicitly

Saving estimates

Adjusted net (genuine) saving Bolivia, 2003

Genuine saving in Sub-Saharan Africa

Genuine Saving / capita vs. Income / capita

Genuine Saving / capita vs. Population growth rate

Counterfactual wealth

Conclusions Natural capital is a larger share of total wealth than produced capital in low income countries Natural capital is a larger share of total wealth than produced capital in low income countries Nearly 70% of natural capital in low income countries is agricultural land Nearly 70% of natural capital in low income countries is agricultural land The value of total natural wealth per person actually rises with income The value of total natural wealth per person actually rises with income When resource depletion and population growth is taken into account, most poor countries face declining wealth per capita When resource depletion and population growth is taken into account, most poor countries face declining wealth per capita

What should we do? Support improved natural resource management in low income countries Support improved natural resource management in low income countries Programs to maintain soil quality Programs to maintain soil quality Reduce incentives to over-exploit natural resources, particularly living resources Reduce incentives to over-exploit natural resources, particularly living resources Assist the poorest countries with economic reforms – increased efficiency will boost both GDP and saving for the future Assist the poorest countries with economic reforms – increased efficiency will boost both GDP and saving for the future Help build human capital and stronger institutions Help build human capital and stronger institutions