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Adjusted Net Saving needs adjusting: reassessing human and resource factors in sustainability estimates

Crawford School of Public Policy
Photo by Jack Dylag on Unsplash

Event details

ACDE Seminar

Date & time

Tuesday 02 August 2022
2.00pm–3.30pm

Venue

Weston Lecture Theatre, Crawford School of Public Policy, #132 Lennox Crossing, ANU

Speaker

Jack Pezzey, Australian National University

Hybrid event - Weston Theatre and online via Zoom

The World Bank’s preferred indicator of a country’s sustainability is its change in wealth per person (CWPP), where wealth combines the values of physical capital, human capital defined as the value of lifetime income, and natural resources. Here we build an extended model of optimal, closed-economy growth where CWPP and another sustainability indicator, augmented, population-adjusted, Adjusted Net Saving (ANS†) per person, are theoretically equivalent, or nearly so. Three different calibrations of this model to the world economy during 1995-2014 give ANS† results all more than 5% of GDP above the Bank’s ANS estimate, confirming the latter’s gap with their CWPP estimate. Our ANS† calibrations bridge this gap by raising human capital investment; including knowledge capital investment, resource discoveries and total factor productivity (TFP) growth; and deducting population dilution of capitals. Such further adjustments are difficult at the country level but needed, particularly for developing countries, because ANS enables more detailed, immediate policy advice than CWPP. Also, by reclassifying a fifth of consumption as human and knowledge capital investment, and assuming only half of human capital investment is in measured GDP, our third calibration needs no TFP growth to explain observed, global economic growth during 1995-2014.

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