An Analytical Macroeconomic Model of Natural Capital: The Case of Uganda

Charl Jooste, Stan Kannegieter and Ted Loch-Temzelides

No 13104, CESifo Working Paper Series from CESifo

Abstract: We develop a methodology to incorporate natural capital into analytical macro growth modeling by deriving an expression for the Pigouvian externality associated with various types of land conversion. This captures the marginal expected discounted future benefits (losses) resulting from the addition (reduction) in the flow of ecosystem services from, for example, a small addition (reduction) in forested land. We illustrate the concept in a calibrated version of our model for the case of Uganda. At our benchmark calibration, converting a hectare of forest to pasture carries a wedge of roughly $15,300, close to seven times the annual output produced on a hectare of Ugandan land. Introducing associated Pigouvian policy tools can lead to more efficient land use, by internalizing the contribution of natural capital that is not captured by market value.

Keywords: natural capital; pigouvian externality; damage function; growth (search for similar items in EconPapers)
JEL-codes: D62 O44 Q51 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_13104

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