OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Productivity Measurement with Natural Capital You or your institution have access to this content

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Author(s):
Nicola Brandt1, Paul Schreyer1, Vera Zipperer1
Author Affiliations
  • 1: OECD, France

Publication Date
30 Oct 2013
Bibliographic information
No.:
1092
Pages
29
DOI
10.1787/5k3xnhsz0vtg-en

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Traditional measures of multi-factor productivity (MFP) growth generally do not recognise natural capital as inputs into the production process. Since productivity growth is measured as the residual between output and input growth, it will pick up the growth in unmeasured inputs, which can lead to a bias. The purpose of this paper is to gain a better understanding of the role of natural capital for productivity measurement and as a source of economic growth. To this aim, aggregate economy productivity measures mostly from the OECD Productivity Database are extended by incorporating natural capital as an additional input factor into the production function. More specifically, this paper considers oil, gas and various minerals as natural capital inputs, drawing on data from the World Bank. Results suggest that failing to account for natural capital tends to lead to an underestimation of productivity growth in countries where the use of natural capital in production is declining because of a dwindling natural capital stock. In return, productivity growth is sometimes overestimated in times of natural resource booms, if natural capital is not taken into account as an input factor. The direction of the adjustment to productivity growth depends on the rate of change of natural capital extraction relative to the rate of change of other inputs. The extended framework also makes the contribution of natural capital to economic growth explicit. This can be useful for countries relying on nonrenewable resources to better understand the need to develop other sources of growth, for example by investing in human or productive capital, to prepare for times when resources endowments become scarce. While the measurement of natural capital remains very incomplete, leaving out natural forests, water and soil, the measurement framework can readily be applied to more encompassing data on the natural capital stock, once it becomes available.
Keywords:
natural resource accounting, natural capital stock, green productivity, multifactor productivity
JEL Classification:
  • D24: Microeconomics / Production and Organizations / Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • O47: Economic Development, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
  • Q3: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Nonrenewable Resources and Conservation
  • Q50: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / General
  • Q56: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth