Natural Capital, Subjective Well-Being, and the New Welfare Economics of Sustainability: Some Evidence from Cross-Country Regressions

Abstract

The measurement of natural capital and its management during the economic development process are important aspects of the capital approach to sustainable development. This paper explores whether natural capital per capita is correlated with life satisfaction across fifty-eight developed and developing countries, using natural capital data from the World Bank’s Millennium Capital Assessment. Bivariate regressions indicate that it is. When a multiple regression model is estimated that includes major macro-level determinants of life satisfaction (i.e. GNI per capita, social capital, income distribution, unemployment and inflation), the positive relationship between natural capital and life satisfaction remains. Adding regional dummy variables for ex-Soviet Union countries and Latin American countries produces somewhat weaker estimates for natural capital, unless data outliers are deleted. Use of alternative subjective well-being variables (i.e. ‘happiness’, and a combined life satisfaction and happiness index) does not change the nature of the results. The findings arguably strengthen the case for a ‘new welfare economics of sustainability’ that takes subjective well-being measures into account.

Keywords: Life Satisfaction, Subjective Well-Being, Natural Capital, Sustainable Development, Welfare Economics, Cross-Country Analysis

JEL Classification: C31, D6, O13, Q01, Q56