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Productivity Measurement with Natural Capital

Author

Listed:
  • Kevin J. Fox
  • Nicola Brandt
  • Paul Schreyer
  • Vera Zipperer

Abstract

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. Productivité multi-factorielle avec capital nat
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Suggested Citation

  • Kevin J. Fox & Nicola Brandt & Paul Schreyer & Vera Zipperer, 2017. "Productivity Measurement with Natural Capital," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63, pages 7-21, February.
    • Handle: RePEc:bla:revinw:v:63:y:2017:i::p:s7-s21
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    File URL: http://hdl.handle.net/10.1111/roiw.12247
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    1. World Bank, 2011. "The Changing Wealth of Nations : Measuring Sustainable Development in the New Millennium," World Bank Publications - Books, The World Bank Group, number 2252, April.
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    8. David M. Byrne & John G. Fernald & Marshall B. Reinsdorf, 2016. "Does the United States Have a Productivity Slowdown or a Measurement Problem?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 109-182.
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    10. Pal, Shreya & Mahalik, Mantu Kumar & Zhao, Qiuyun & Liu, Fan & Soliman, Alaa M., 2024. "Boosting productive capacity in OECD countries: Unveiling the roles of geopolitical risk and globalization," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
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    13. Serena Fatica, 2017. "Measurement and Allocation of Capital Inputs With Taxes: A Sensitivity Analysis for OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(1), pages 1-29, March.
    14. Mota, Rui Pedro & Cunha-e-Sá, Maria A., 2019. "The Role of Technological Progress in Testing Adjusted Net Savings: Evidence from OECD Countries," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    15. Wan-Jiun Chen & Chien-Ho Wang, 2020. "A General Cross-Country Panel Analysis for the Effects of Capitals and Energy, on Economic Growth and Carbon Dioxide Emissions," Sustainability, MDPI, vol. 12(15), pages 1-20, July.
    16. Oluc, Ihsan & Ben Jebli, Mehdi & Can, Muhlis & Guzel, Ihsan & Brusselaers, Jan, 2022. "The Productive Capacity And Environment: Evidence From OECD Countries," MPRA Paper 112590, University Library of Munich, Germany.
    17. Robi Kurniawan & Shunsuke Managi, 2019. "Linking Wealth and Productivity of Natural Capital for 140 Countries Between 1990 and 2014," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(1), pages 443-462, January.
    18. Chris McDonald & Ana I. Moreno-Monroy & Laura-Sofia Springare, 2019. "Indigenous economic development and well-being in a place-based context," OECD Regional Development Working Papers 2019/01, OECD Publishing.
    19. Matthew Agarwala & Josh Martin, 2022. "Environmentally-adjusted productivity measures for the UK," Working Papers 028, The Productivity Institute.
    20. Tenaw, Dagmawe, 2025. "Green and traditional productivity growth with natural capital: The role of resource depletion, environmental damages and sectoral composition," Resources Policy, Elsevier, vol. 103(C).
    21. Lin, Shu & Razzaq, Asif & Yi, Kefu, 2023. "Heterogenous influence of productive capacities pillars and natural resources on ecological sustainability in developing Belt and Road host countries," Resources Policy, Elsevier, vol. 85(PA).
    22. Josh Martin & Rebecca Riley, 2025. "Productivity measurement: Reassessing the production function from micro to macro," Journal of Economic Surveys, Wiley Blackwell, vol. 39(1), pages 246-279, February.
    23. -, 2018. "The wealth gifted to the large-scale copper mining industry in Chile: new estimates, 2005-2014," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    24. Cárdenas Rodríguez, Miguel & Haščič, Ivan & Souchier, Martin, 2018. "Environmentally Adjusted Multifactor Productivity: Methodology and Empirical Results for OECD and G20 Countries," Ecological Economics, Elsevier, vol. 153(C), pages 147-160.
    25. Voskoboynikov, Ilya B., 2017. "Sources of long run economic growth in Russia before and after the global financial crisis," Russian Journal of Economics, Elsevier, vol. 3(4), pages 348-365.

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies 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

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