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Productivity Measurement with Natural Capital

  • Nicola Brandt
  • Paul Schreyer
  • Vera Zipperer

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 naturel Des mesures traditionnelles de croissance de la productivité multifactorielle, en général, ne prennent pas en compte le capital naturel en tant que facteur de production. Comme la croissance de productivité est la différence entre la croissance de la production et des intrants, cette mesure sera biaisée dès qu’il y aura des intrants non-mesurés, comme par exemple le capital naturel. L’objectif de ce rapport est donc de mieux comprendre le rôle du capital naturel dans les mesures de productivité, et comme source de croissance économique. Ainsi, il enrichit des mesures de productivité à l’échelle de l’économie agrégée, pour la plupart extraites de la base de données de productivité de l’OCDE, en intégrant explicitement le capital naturel comme facteur de production. Plus spécifiquement, le rapport considère le pétrole, le gaz naturel et des minéraux variés comme des éléments du capital naturel, en se servant des données de la Banque Mondiale. Les résultats suggèrent qu’ignorer le capital naturel a tendance à mener à une sous-estimation de la croissance de productivité dans les pays où l’utilisation du capital naturel est en déclin à cause des réserves en voie de disparition. En revanche, la croissance de productivité est parfois surestimée pendant des périodes de hausse des prix des ressources naturelles. La direction de la correction de la mesure de croissance de productivité dépend du taux de croissance relatif de l’extraction du capital naturel par rapport au taux de croissance des autres intrants. La mesure de productivité ainsi enrichie permet aussi de mesurer explicitement la contribution du capital naturel à la croissance économique. Ceci peut s’avérer très utile pour des pays dépendant des ressources naturelles non-renouvelables pour mieux comprendre leur besoin d’investir dans le capital humain ou productif pour se préparer pour des périodes de pénurie de leurs ressources naturelles. Même si la mesure de capital naturel utilisée dans ce rapport reste très restreinte, ne prenant en compte ni les forêts vierges, ni l’eau ou le sol, le cadre proposé peut facilement être appliqué à des données plus complètes, dès qu’elles seront disponibles.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1092.

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Date of creation: 30 Oct 2013
Date of revision:
Handle: RePEc:oec:ecoaaa:1092-en
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