Are Greener National Accounts Better?

"Green accounting" refers to the incorporation of changes in wealth, in particular natural resource wealth, into a country’s national accounts. Despite a large body of theoretical work and considerable promotional efforts by international and national organizations, there is no firm evidence that greener national accounting measures provide better indicators of long-run economic possibilities. In this paper I construct per capita estimates of green net national product (NNP) and genuine savings for 13 countries in Latin America during 1973-86. I then test econometrically whether these measures are systematically related to consumption in subsequent years. I deal with possible nonstationarity in the data series by estimating models expressed in first-differences, in addition to models expressed in levels. Despite incomplete adjustments and crude data, my estimates of genuine savings are related to future consumption in a manner consistent with theoretical predictions. In particular, all the coefficients on the individual components of genuine savings have the correct signs and are highly statistically significant in both the models with levels and the models with first-differences. Results are more mixed for green NNP. An irony of my results is that physical capital, not natural capital, appears to be the greater source of data problems for green accounting.