Natural Resources, Globalization and Sustainable Economic Welfare: A Panel ARDL Approach

• Published in: Estudios de economía aplicada 2019-05, Vol.35 (3), p.653-672
• Main Authors: Fuinhas, José Alberto, Cardoso Marques, António, Da Silva Faria, Samuel
• Format: Article
• Language: English
• ISSN: 1133-3197; 1697-5731
• DOI: 10.25115/eea.v35i3.2499

GDP has been the most widely accepted measure of economic performance but it fails to accurately measure economic development, overlooking key aspects of quality of life and sustainability. Thereby, the Index of Sustainable Economic Welfare (ISEW) emerges as the dominant alternative. This paper aims to (i) compare both GDP and ISEW as measures of economic performance and (ii) establish the effects of natural resource exploitation and globalization on both economic growth and sustainable development. A Panel Autoregressive Distributed Lag approach is used, to check for short and long-term effects. The panel is composed by 14 OECD countries, using annual data for the time span from 1995 to 2013. Results show that natural resources rents have a positive effect on GDP per capita in the short-run and a negative effect on ISEW per capita on both short and long-run. Trade openness has a positive impact on short-run economic growth and negative impact on long-term sustainable development. Policy makers ought to consider ISEW as an alternative and more accurate measure of economic performance, should implement policies that reduce the depletion of natural resources and confine the harmful effects of globalization to enhance economic development and create more welfare.