Adjusted Net Saving Needs Further Adjusting: Reassessing Human and Resource Factors in Sustainability Measurement

Abstract

We build a theoretical model of optimal, closed-economy growth including inputs of human and knowledge capital and growing natural resources, and give three approximate calibrations of it to global economic growth during 1995-2014. We thereby show that the World Bank's Adjusted Net Saving measure of an economy's sustainability ideally needs further adjusting, to include omitted or undervalued estimates of productivity and population growth, human and knowledge capital investment, and net growth in natural resource use. The net effect of these inclusions is to raise estimated, global Adjusted Net Saving per person about 5-11% of GDP per person above the World Bank's estimate, confirming the latter's gap with their implied estimate of change in wealth per person, their preferred sustainability indicator. However, our adjustments also omit all environmental costs, so on its own our methodology is intended just to inform national, medium-term, non-environmental policies, where Adjusted Net Saving gives more detailed and immediate feedback than change in wealth. By reclassifying nearly a fifth of output from consumption to human and knowledge capital investments, and assuming only half of human capital investment is in measured GDP, our third calibration needs no productivity growth to explain global growth observed during 1995-2014.