Genuine Savings: A Critical Analysis of its Policy-Guiding Value
International Journal of Environment and Sustainable Development, Vol. 3, No. 3/4, pp. 276-292, 2004
23 Pages Posted: 30 Sep 2004 Last revised: 10 Dec 2010
Date Written: December 7, 2010
Genuine Savings (GS) is an established measure of weak sustainability (WS). It can be shown with the help of a dynamic optimisation model that an economy with persistently negative GS cannot be weakly sustainable. This article presents the main conclusion that follows from empirical estimates of GS, namely that many resource intensive developing economies appear to be weakly unsustainable, whereas the developed countries are not. It praises the concept for the positive contributions it has made to the measurement of WS and to the concept of sustainable development more generally. It then analyses in some depth the various criticisms of GS. These encompass the unrealistic assumption of an inter-temporally efficient economy, the treatment of exogenous shocks and population growth, the method for computing natural capital depreciation due to resource extraction and the inadequate accounting for environmental pollution. We conclude that despite various substantial problems, GS represents the best attempt at measuring WS so far and that it should become developed and improved over time.
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