National income is underpinned by a country’s wealth–measured comprehensively to include all assets, produced capital, human capital, natural capital and net financial assets–and sustained economic growth over the long term requires investment in this broad portfolio of assets. While a macroeconomic indicator like GDP provides an important measure of economic progress, it does not reflect changes in the underlying asset base, and hence, used alone, may provide misleading signals about the state of the economy. GDP does not reflect depreciation and depletion of assets, whether accumulation of wealth keeps pace with population growth, or whether the mix of different assets will support a country’s development goals. GDP indicates whether an economy is growing; Comprehensive Wealth indicates the prospects for maintaining economic growth over the long term. Economic performance is best evaluated by monitoring both.
The book “The Changing Wealth of Nations 2018” tracks the wealth of 141 countries between 1995 and 2014 by aggregating natural capital (such as forests and minerals); human capital (earnings over a person’s lifetime); produced capital (buildings, infrastructure, etc.); and net foreign assets. Human capital is being measured for the first time and there are improved estimates for natural capital which include forests and agricultural land, as well as fossil fuels and minerals.
The good news is that overall wealth is growing. Middle-income countries are closing the gap with high-income countries and now have a greater share of wealth. More than two dozen low-income countries, where natural capital dominates the composition of wealth, have moved to middle-income status, in part by investing prudently in natural resources, infrastructure, and education. However, not everything is rosy, including a decrease in the value of productive forests and declining or stagnating per capita wealth in more than two dozen countries.
Download the full World Bank report here.