Journal Article

Comprehensive Wealth and Future Consumption: Accounting for Population Growth

Susana Ferreira, Kirk Hamilton and Jeffrey R. Vincent

in The World Bank Economic Review

Volume 22, issue 2, pages 233-248
Published in print June 2008 | ISSN: 0258-6770
Published online May 2008 | e-ISSN: 1564-698X | DOI: http://dx.doi.org/10.1093/wber/lhn008
Comprehensive Wealth and Future Consumption: Accounting for Population Growth

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  • Economic Growth and Aggregate Productivity
  • Agricultural, Environmental, and Natural Resource Economics
  • Multiple or Simultaneous Equation Models; Multiple Variables

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Economic theory predicts that the current change in national wealth, broadly defined to include natural and human capital as well as produced capital (“genuine savings”), determines whether the present value of future changes in consumption is positive or negative. Theoretical research has focused on the effects of population growth on this relation, but no rigorous empirical investigation has been conducted. Panel data for 64 developing countries during 1970–82 are used to test the effects of three adjustments for population growth, including one that controls for omitted wealth. Although the adjustments have substantial impacts on estimates of genuine savings, they lead to only limited improvements in the relation between those estimates and subsequent consumption changes. Even without adjustments for population growth, adjustments for natural resource depletion improve the relation significantly. Policymakers and economists can interpret published estimates of genuine savings as signals of future consumption paths if and only if the estimates include adjustments for natural resource depletion. But better estimates of capital stocks are needed before it can be confidently said that adjustments for population growth significantly improve the accuracy of those signals.

Keywords: O40; Q01; C33

Journal Article.  5755 words.  Illustrated.

Subjects: Economic Growth and Aggregate Productivity ; Agricultural, Environmental, and Natural Resource Economics ; Multiple or Simultaneous Equation Models; Multiple Variables

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