Adjusted net savings needs further adjusting: Reassessing human and resource factors in sustainability measurement

• Published in: Journal of environmental economics and management 2024-09, Vol.127, p.102984, Article 102984
• Main Author: Pezzey, John C.V.
• Format: Article
• Language: English
• Subjects: Adjusted Net Savings; Consumption growth; Global sustainability; Human capital; Population growth; Resource discovery; Sustainability accounting; Total factor productivity; Wealth; World Bank
• ISSN: 0095-0696
• DOI: 10.1016/j.jeem.2024.102984

We build a theoretical model of optimal, closed-economy growth of production and consumption, including inputs of human and knowledge capital and growing natural resources, and give two calibrations of it to the global economy's approximately exponential growth during 1995–2014. We thereby show that the World Bank's Adjusted Net Savings (ANS) measure of an economy's sustainability, which has some practical and theoretical advantages over change in wealth, the Bank's preferred measure, ideally needs further adjusting. Our model includes omitted or undervalued estimates of the benefits of human and knowledge capital investment, net resource growth, and productivity growth, and the cost of capitals dilution by population growth. Together these raise estimated, global ANS about 10 percentage points above the Bank's estimate, to equal their growth rate times total wealth, but our adjustments could be negative overall for some countries. By reclassifying about 18% of output from consumption to human and knowledge capital investments, our second calibration needs only 0.3 %/yr of exogenous productivity growth to explain global consumption growth observed during 1995–2014. Though our model omits environmental costs and thus ignores long-run sustainability issues, our adjustments suggest desirable though difficult changes that could improve World Bank ANS as a comparative sustainability indicator.