Transcript Net National Income

National Accounts and Measures
of Sustainability
Rui Mota
[email protected]
Tel. 21 841 9440 Ext. 3440
Tiago Domingos
October 2011
National Accounts Identity
C
I
X
M
Main Aggregates
Subtract CFC
Gross Domestic Product (GDP)
Net Domestic Product (NDP)
+ Net primary income flows to ROW
= Gross National Income (GNI)
= Net National Income (NNI)
+ Current net transfers from ROW
= Gross National Disposable Income
= Net National Disposable Income
- Final consumption (Private and Government)
= Gross Saving (S)
= Net Saving (NS)
Main Aggregates
National
(Residence)
- Primary income
flows to ROW
Product / Income
+ Primary income flows
from ROW
Domestic
(Territory)
Net
+ Consumption Fixed
Capital (CFC)
Aggregate X
- Consumption of Fixed
Capital (CFC)
Gross
X – Domestic produc, Income, Saving, Disposable income, ...
Domestic Product vs. National Income
• GNI = GDP + Y’RM . Where Y’RM = Net income payable to non-resident
units for production factors.
180
160
140
Milliards euros
120
100
80
60
PT Domestic
Ireland Domestic
40
PT National
Ireland National
20
0
1960
1965
Source: AMECO database
1970
1975
1980
1985
1990
1995
2000
2005
Gross Product vs. Net Product [Million euros 2000]
160000
140000
120000
Million euros
100000
GDP
80000
NDP
60000
40000
20000
0
1990
Source: AMECO database
1995
2000
2005
GDP growth rate
GDP Growth rate %
14
12
10
8
6
4
GDP Growth rate %
2
0
1961
1966
1971
-2
-4
-6
Source: AMECO database
1976
1981
1986
1991
1996
2001
2006
Gross Product per hours worked [euros 2000]
11000000
10500000
10000000
9500000
9000000
8500000
8000000
1986
Source: AMECO database
1991
1996
2001
2006
2011
Net Saving in Portugal [Mrd euros 2000]
• Net savings are negative when consumption is higher than net disposable
income
1000000
500000
0
1960
1965
1970
-500000
-1000000
-1500000
-2000000
Source: AMECO database
1975
1980
1985
1990
1995
2000
2005
2010
National Disposable Income [Mrd euros 2000]
1200000
1000000
800000
600000
400000
200000
0
1970
1975
Source: AMECO database
1980
1985
1990
1995
2000
2005
2010
Sustainable Development
• “Development that meets the needs of the present without
compromising the ability of future generations to meet their own need.”
– Intra- and inter-generational equity
– Anthropocentric
• Sustainability of what?
–
–
–
–
non-declining aggregate output or consumption,
non-declining utility,
non-declining aggregate resources (productive base),
non-increasing pollution, …
• Weak vs. Strong Sustainability
– Limits to substitution,
– Is the combined value of all assets remain constant, that is, it is possible to
substitute one form of capital for another, so natural capital can be depleted or
the environment degraded as long as there are compensating investments in
other types of capital?
– Critical levels of natural capital.
International Efforts
• World Bank’s Adjusted Net Savings (Genuine Savings)
• Rate of savings after taking into account investment in human capital, depletion of natural
resources and damage caused by pollution. Time series (1970 - …) for 140 countries.
(http://go.worldbank.org/VLJHBLZP71)
• European Commission (http://www.beyond-gdp.eu/)
• Indices to measure progress integrated into the decision-making and public debate?
• “We cannot face the challenges of the future with the tools of the past. It's time to go
beyond GDP.” Durão Barroso
• Extending European National Accounts to environmental and social issues.
• OECD work on alternative measures of welfare
(www.oecd.org/dataoecd/13/38/36165332.pdf)
• Extending GDP to include leisure time and inequality. Changes in country rankings
• Stiglitz Commission (http://www.stiglitz-sen-fitoussi.fr)
• Identify the limits of GDP as an indicator of economic performance and social progress.
• SEEA 2003, United Nations (http://unstats.un.org/unsd/envaccounting/seea.asp)
• Satellite system of the SNA including economic and environmental information in a single
framework to measure the contribution of the environment to the economy and vice-versa.
World Bank’s Genuine Savings
World Bank’s Genuine Savings
World Bank’s Genuine Savings
• Resource Curse: Countries dependent on natural resources tend to depict
unsustainable development (negative GS).
Sustainability vs Optimality
• A Sustainable Economic path at time t is one that obeys
where
is the maximum sustainable utility, defined as
• A Present Value Optimal path is one that results from the
maximization of Present Value (PV):

W (0) :  U (C(t ))e t dt
0
• Future utility is being discounted with a constant discount rate d
• Hicks (1946) : Individual’s income “maximum amount of money
which the individual can spend this week, and still expect to be
able to spend the same amount in real terms in each ensuing
week".
Sustainability vs Optimality (DH economy)
•
•
•
•
If C(t) > Cm(t) then C(t) must decline to below Cm(t) at some future time.
For low enough discount rates, the path is sustainable.
For high enough discount rates, the path is unsustainable.
These conclusions also depend on the assumption that man-made capital
is more important to production than the resource.
Dynamic Optimization: Cake-Eating Economy
• What is the optimal path for an economy “eating” a cake?
subject to
c 1-e
U c =
Þe c =e >0
1- e
()
()
• Optimal System:
• Optimal and sustainable?
Dasgupta-Heal Model
• Capital resource economy with no technological progress:
subject to

Production can be used to consume or invest: F  K (t ), R(t )   c(t )  K (t )
Extraction of a non-renewable resource used in production
• Optimal Path:
Hotelling’s rule
Ramsey’s rule
• Optimal and sustainable?
Production
• Capital resource economy with Cobb-Douglas production:
• Factors of production are essential. But with different importance
(factor elasticities).
• Elasticity of substitution: Provides a measure of how easy it is to
substitute one input for another in production (curvature of isoquants).
 :
d ln R / K
d ln FK / FR
Constant Elasticity of Substitution (CES)
K
K
K
=0
=
=1
A
KA
B
KB
R
RA RB
Complements
K
F2
F1
R
R
Perfect
substitutes
K
F2
F1
F1
R
R
=1
Essential
<1
F2
Sustainability vs Optimality (Cobb-Douglas)
•
•
•
Consumption tends to zero (resources are essential).
Since K is more important to production than R, then Cm(t) is positive.
Consumption becomes unsustainable (C >Cm) before it becomes
unsustained (C >F).
Sustainability vs Optimality
•
•
•
For low enough discount rates, the path is sustainable.
For high enough discount rates, the path is unsustainable.
These conclusions also depend on the assumption that man-made capital
is more important to production than the resource.
Hartwick’s Rule
•
Can this economy maintain constant consumption even though the
resource is being depleted?
•
What is the role of substitution between man-made capital K and the
natural resource R in the production of the composite good?
·
K = FR R
·
then C = 0
•
If
•
Net investments = value of the ‘revenues’ from exploitation
•
If the accumulation of man-made capital always exactly compensates in
value for the resource depletion, then consumption remains constant at
the maximum sustainable level.
To Sum Up
•
In Cobb-Douglas, consumption declines to zero (with no tech. progress).
•
If the elasticity of substitution is > 1 (man-made capital is more
important than exhaustible capital), such resources are not essential for
production, so consumption may not decline to zero.
•
If consumers are sufficiently patient (low discount rates – high value to
the future), then consumption will be sustained in the optimal path.
•
If there is technological progress, it is possible to sustain consumption
even if inputs are complements (no substitution).
•
The effect of essential resources may be offset by sufficient
substitution possibilities and technological progress.
Green Accounting Theory
• m-dimensional consumption bundle, including everything that
influences well-being.
– Includes all market and non-market commodities, e.g, produced at
home, environmental services, …
• n-dimensional capital vector:
– Includes man-made capital, natural resources, human capital
(education and knowledge) and foreign capital. Time is included as
a capital, to depict technological progress in production.
• Attainable production possibilities
• The model
s.t.
C(t ),I(t )  S (K(t ), t )
dK
I
dt
C(t ),I(t )  S (K(t ), t )
Green Accounting Theory
• Green Net National Income Y  P  C  Q  I
• Genuine Savings Q  I
• Changes in Green Net National Product measure changes in welfare.
• Genuine Savings measure changes in welfare.
dY
R dW
 RQ  I 
dt
 dt
• Define sustainable development as:
- non-decreasing utility.
• Then, a one-sided sustainability test is (Pezzey, 2004)
QI  0 or
dY
0 
dt
un-sustainable development.
Small Open Economy
• Include
– stocks of commercial forests,
– welfare costs of air emissions,
• The capital stocks are K : ( K , K f , K H ,S) :
– Domestic man-made capital,
dK
 I  CFC
dt
– Net foreign capital held privately or by the government,
dK f
 rK f  X  M  QR  (R X  R M )
dt
– Stock of commercial natural resources
– Human capital
dS
 G(S)  R d  R X
dt
dK H
 F H h
dt
• Production
F ( K , R d  R M , t )  I  C  X  M  a  h  f (R d  R X ,S)
Small Open Economy
• Households’ utility function U (C) : U (C ,E) depends on material
consumption rate and (negatively) on the flow of emissions
• The vector of emissions
expenditure.
depends on production and abatement
• Maximize welfare subject to the dynamics of the forms of capital
considered.
Y  NNI  (Q  f R )  S  e E Q t
• Green Net National Income:
• Genuine Saving:

R


Q K  Q  NS  (Q  fR )  S  FhH  F H  Qt
t
• The value technological progress (TFP):
R
1

Q (t )   Fs e R( s t )ds
t
t
GNNI and GS in Portugal
• Starting from conventional SNA aggregates:
– Deduct the damage from flow pollution emissions, e E
– Deduct (add) the value of rents from resource depletion (or
not), (Q R  fR )  S
140000
120000
100000
GNI
CFC
Million €
80000
Air emissions
Forest Depl.
60000
Tech. Progress
GNNI
40000
Pot GNNI
GNNI, T=100
20000
0
1990
-20000
1995
2000
2005
GNNI and GS in Portugal – Air Emissions
• Impacts considered:
– Exposure to PM2.5 and ozone
– Health damages of PM2.5 (both acute and chronic effects) and ozone, O3 (only acute).
Both long-term (chronic) and short-term (acute). Both mortality (i.e. deaths) and
morbidity (i.e. illness)
• Marginal cost of emission per emitted pollutant [€2000/ton]:
[€2000/t]
Best
Low
High
SO2
6872
3472
9972
NH3
7399
3699
10999
NOx
2040
1140
3040
VOC
1150
450
1550
PM2,5
44000
22000
64000
GNNI and GS in Portugal – Air Emissions
70
60
SO2
% of total cost
50
NH3
40
NOx
VOC
30
PM 2,5
20
10
0
1990
1995
2000
2005
• The damages from air emissions are around 8% of Portuguese GNI:
- [4, 11]% GNI
GNNI and GS in Portugal – Forests
100
Coniferous
Eucalyptus
50
million €
0
1990
1995
2000
2005
-50
-100
-150
-200
The depreciation of commercial forests in Portugal is on average
10% of the contribution of forestry to national product (around
4%).
Genuine Savings
40000
35000
30000
GS, no Qt and Educ
GS
GS, T=100
25000
Million €
20000
15000
10000
5000
0
1990
1995
2000
2005
-5000
-10000
• Without the value of time – Decreasing tendency throughout the period
and negative GS after 2002.
• With the value of time – Decreasing tendency until 2001, but GS are
always positive.
Sustainability Message
• In 1993, SO2 costs of emissions, which represent around 30% of total
emission costs, decreased substantially. Increases welfare but does not
counteract the loss of production.
What’s Missing?
• The depletion of water resources.
• The depletion of biodiversity.
• Depletion of stocks of fish.
• Inclusion of the value of ecosystem services.
• Soil quality.
• Distributional issues (intragenerational concerns).
• Looking at an extended but incomplete range of assets may produce a
result further from the truth
• Indicators need to be treated with caution as tests for sustainable
development and guides to policy.
• ...