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Natural capital and aggregate income growth

Published online by Cambridge University Press:  27 December 2024

Dale T. Manning Open the ORCID record for Dale T. Manning [Opens in a new window]  and
Edward B. Barbier
Dale T. Manning*
Affiliation:
Baker School and Agricultural and Resource Economics, University of Tennessee, Knoxville, TN, USA
Edward B. Barbier
Affiliation:
Department of Economics, Colorado State University, Fort Collins, CO, USA
*
*Corresponding author: Dale T. Manning; Email: [email protected]
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Abstract

We explore the theoretical conditions in which natural capital improves explanations of aggregate income growth from factor changes. With positive total factor productivity (TFP) growth, including natural capital better explains growth if natural capital growth rates exceed physical capital growth rates. With negative TFP growth and higher natural capital growth rates, natural capital worsens explanations of growth. Using a comprehensive dataset on natural resource stocks and income shares in GDP, we perform an empirical analysis with 99 countries over three time periods between 2001 and 2015 and find that 41 per cent of country-time periods meet the conditions for improved growth explanation with natural capital. Of these, 59 per cent occur because TFP growth is negative, and physical capital growth exceeds that of natural capital. In these cases, including natural capital simultaneously reduces bias in factor shares and TFP estimates and improves the share of growth explained by changes in factors.

Keywords

natural capitalgrowth accountingincome growthtotal factor productivity

JEL classification

O47: Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence Q56: Environment and Development • Environment and Trade • Sustainability • Environmental Accounts and Accounting • Environmental Equity • Population Growth O44: Environment and Growth
Type
Research Article
Information
Environment and Development Economics , Volume 30 , Issue 2 , April 2025 , pp. 155 - 174
Copyright
Copyright © The Author(s), 2024. Published by Cambridge University Press

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