Genuine Savings Rates in Developing Countries

Abstract

Augmented measures of savings and wealth in the national accounts are critical to conceptualizing and achieving sustainable development. After developing the theory of genuine savings—traditional net savings less the value of resource depletion and environmental degradation plus the value of investment in human capital—this article presents empirical estimates for developing countries. These calculations account for resource depletion and carbon dioxide emissions, using consistent time series data for 1970–93. The empirical evidence shows that levels of genuine savings are negative in a wide range of countries, particularly in Sub-Saharan Africa, and that these countries are being progressively impoverished. Increasing the coverage of natural resources and pollutants in our calculations would reduce the estimated levels of genuine savings overall. The use of genuine savings measures suggests a series of policy questions that are key to sustaining development. These are also explored, specifically the extent to which monetary and fiscal policies, exports of exhaustible resources, stronger resource policies, and pollution abatement measures boost genuine savings rates. For policymakers, linking sustainable development to genuine savings rates means that there are many possible interventions to increase sustainability, from the macroeconomic to the purely environmental.