Saturday, September 17, 2005

Measuring the wealth of nations

Incredibly useful new indicator from the World Bank: the wealth of nations.

How did they do it? Total wealth is equated to the present value of the consumption stream. The WB also calculated the value of natural resources and capital. The difference between the value of physical stocks and total wealth is attributed to "intangibles", such as human capital and institutions. (Hence, the value added of the publication is not mainly in its estimates of total wealth, but rather in how total wealth is broken up into components.)

Some results: Globally, most wealth is in intangible form (77%); this is followed by capital (18%) and natural resources (5%). Needless to say, most wealth is in the hands of high income countries (which is to be expected given the method of computing total wealth). However in low income countries the share of natural resources is much greater, at 29% (with only a 16% share of capital in total wealth).

Assuming the now wealthy economies started out like today's low income countries, what they were able to do therefore was convert their resource stocks into other forms of assets. Thus the World Bank data gives us a quantitative handle on the issue of "sustainable development" - often mystically restricted to maintaining natural resource flows, neglecting the possibility that these resource flows can be converted into other forms of wealth.

2 comments:

Amadeo said...

Adam Smith's The Wealth of Nations was such ground-breaking work in 1776, and on which was founded our modern-day studies of Economics.

The title then may be a play on or reference to this pioneering work? Or simply coincidence?

Have downloaded the pdf file for this WB publication, which may take some time to read and digest.

Economics may be a study many countries, especially the poor ones, would rather pay only token attention to. Environmental subjects may be more their cup of tea. More emotional and more passion involved.

And personally with this attitude, I see some misplaced priorities, or the missing of a greater and bigger picture.

More power and keep at it. And would like to see the subject of the WTO delved on, especially under Philippine context.

Econblogger said...

Amadeo,

No coincidence, for sure.

Economics (in the sense of making money) is keener felt in poor countries than the environment, which is often sacrified for economic objectives.

Post on WTO coming soon!