Sustainable matrix beyond GDP: investment for inclusive growth

The paper begins by highlighting the limitations of GDP as a sole measure of sustainable development and human well-being, citing existing literature that emphasizes the need for alternative metrics. It mentions the 'Beyond GDP' movement and its influence on developing more comprehensive indicators, especially in the wake of the COVID-19 pandemic. The authors introduce the Inclusive Wealth Index (IWI) as a proposed solution. IWI integrates biophysical and monetary values of natural, human, and produced capital into a single indicator, conceptually linking wealth and human welfare. The paper positions the current study as the fourth empirical measure of IWI, expanded to cover 163 countries (98% of the world's population) from 1990 to 2019, with improved data and coverage of multiple Sustainable Development Goals (SDGs). The study aims to uncover patterns of natural capital overexploitation and unequal capital accumulation, particularly focusing on the vulnerability of developing and low-income countries. The authors plan to discuss policy implications for sustainable economic management and recovery from the COVID-19 pandemic.

The paper reviews the limitations of GDP as a measure of sustainable progress, highlighting three key shortcomings: GDP inadequately reflects changes in human well-being, ignores changes in asset stocks that generate income (like natural capital), and fails to keep pace with changes in economic activity due to globalization. The authors critique alternatives like green GDP indicators (ISEW and GPI) for being too closely tied to GDP and the Human Development Index (HDI) for its strong but not complete correlation with GDP. They contrast IWI with these alternatives by emphasizing its focus on changes in national wealth (capital stock), which complements rather than replaces GDP, and highlight IWI's consideration of the limited substitutability of finite natural resources. Finally, the authors acknowledge limitations in national IWI accounts, such as challenges in valuing intangibles and reducing reliance on market prices, while also emphasizing the need for going beyond market valuation in addressing human participation in public goods related to the biosphere and the interaction between technological progress and environmental policy.

The study employs the Inclusive Wealth Index (IWI), a composite indicator integrating biophysical data and monetary values for natural, human, and produced capital assets. The methodology builds upon established theoretical and empirical research, demonstrating the equivalence between wealth and social welfare for assessing intergenerational sustainability. Constructing the cross-country IWI involves aggregating global databases, quantifying assets consistently, and assigning shadow prices to reflect their social value and contribution to intergenerational welfare. Market prices are primarily used for shadow prices, adjusted to consider long-term sustainability. Ecosystem service values are derived from the Ecosystem Services Valuation Database (ESVD). To account for sustainability, the study uses the non-declining IWI per capita at constant shadow prices. Time-varying adjustments include total factor productivity (TFP), CO2 damages, and oil price gains. The latest IWI accounts improve upon previous versions by expanding natural capital accounting (140 to 163 countries), integrating comprehensive information on gender, education, and health into human capital estimation, and refining produced capital estimation with country-specific data and depreciation rates. While acknowledging remaining limitations (e.g., incomplete ecosystem service valuation, lack of consumption-side accounts, limited gender disaggregation in human capital valuation), the authors justify the analysis based on the valuable insights provided by tracking trends in different capital assets.

The updated IWI accounts for 163 countries from 1990 to 2019 reveal a global decline in natural capital (28% since 1990) and a 50% decrease in per capita natural capital since 1990. Per capita inclusive wealth declined by 0.5% despite economic growth, highlighting the cost of natural capital depletion driven by population growth (a net increase of 2.4 billion people). Human capital per capita increased but at a decreasing rate. A significant concentration of natural capital (68%) is held by G20 countries, with declines in other regions such as Latin America, the Caribbean, East Asia, and the Pacific. Analysis of wealth accumulation by income groups (2010-2019) shows the highest growth in G20 countries, slower growth in lower-middle-income countries, and a decline in low-income countries due to population growth and natural capital depletion. High-income countries, despite high investment in human and produced capital, had limited wealth accumulation due to population growth and natural capital depletion. A stacked bar chart reveals that 45 of the 163 countries experienced negative per capita wealth growth, mainly in low and lower-middle-income countries with low human and produced capital growth and significant natural capital decline. The study finds that in low-income countries, higher TFP growth is associated with higher natural capital depletion, while high-income countries show a trend toward reduced natural capital depletion with technological progress. The study examines the relationship between natural capital depletion and income inequality. Improvements in income equity are associated with resource loss in unequal middle-income countries, while in high-income and G20 countries, depletion is linked to worsening inequality.

The findings highlight the unsustainable trajectory of global per capita inclusive wealth, particularly in developing and low-income countries with poor natural resource management. The study emphasizes the non-substitutability of natural capital. While free access to natural resources may improve short-term income and reduce inequality in these countries, the irreversible loss of natural capital threatens sustainability. The unequal distribution of natural capital among G20 countries further exacerbates global inequalities. While high-income countries are reducing natural resource loss through technological change, low- and middle-income countries face irreversible depletion despite technological progress. The authors reconcile their findings with the concept of non-substitutability of natural capital, highlighting that the IWI framework promotes efficient management of all capital for sustainable development. The COVID-19 pandemic further underscores the importance of efficient capital management to address global challenges. The paper argues that policies to protect natural resources must address potential inequalities and call for more nuanced development strategies.

The study concludes that the IWI provides a valuable framework for measuring and guiding sustainable development beyond GDP. The findings emphasize the urgent need for balanced investment in human capital, technological innovation, and natural capital preservation, especially in countries facing rapid urbanization and resource depletion. Policymakers are urged to integrate inclusive wealth metrics into policy frameworks for achieving sustainable development goals and equitable prosperity. Further research is needed to address data limitations, particularly in valuing diverse ecosystems and incorporating detailed gender disaggregation in human capital valuation. The authors advocate for the systematic inclusion of the IWI alongside other non-GDP indicators to enhance policy discourse and guide nations towards sustainable prosperity.

The study acknowledges limitations related to data availability and the accuracy of valuations, particularly for ecosystem services and intangible assets. More detailed gender disaggregation in human capital valuations is also needed. While these limitations don't negate the IWI's value, they suggest opportunities for future research to enhance the accuracy and applicability of the IWI. The data used is not publicly available but can be requested from the authors, subject to conditions and data-sharing policies.