Gross Domestic Product (GDP) is the most widely used measure of economic performance world-wide. Where long-run economic sustainability and human well-being are concerned, GDP can provide misleading policy advice. While the limitations of GDP are discussed conceptually in the literature, we provide a quantitative example demonstrating the implications of using only GDP to inform policy design. In the context of Colombia’s post-conflict development, we show that continuing the recent trend of increasing deforestation reflects positively on GDP by about US$59 million by 2035. However, when we consider the natural capital assets and environmental quality that underpin economic growth summarized by the Genuine Savings indicator of wealth, reducing deforestation and enhancing agricultural productivity results in a more prosperous and sustainable post-conflict future for Colombia with a US $48 billion increase in wealth. Policy makers relying only on GDP as a guide to policy effectiveness risk undermining their country’s development prospects and inter-generational well-being which is at the very core of sustainable development. While natural capital accounting sheds light on past economy-environment interactions, future looking integrated analytical frameworks such as that presented in this paper are required to evaluate policies on the basis of their potential impacts on sustainable economic development and wealth.
January 2021
Authors:
Onil Banerjee
Martin Cicowiez,
Renato Vargas,
Carl Obst,
Javier Rojas Cala,
Andres Camilo Alvarez-Espinosa
Sioux Melo
Diego Saenz Meneses
Link: https://doi.org/10.1016/j.ecolecon.2020.106929
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